Large RIA firms looking for firms to buy are searching for the right ‘fit,’ says Fidelity Clearing and Custody Solutions.
There are certain definable characteristics the selling firm needs to have, and some of those traits are not so easily described, Fidelity says in its 2016 Wealth Management M&A Transaction Report released Monday.
Among the desired attributes, the selling firms need to have young clients and should be growing, Fidelity says.
“Acquirers told us that they’re being much more selective as they consider which firms to target. They’re using M&A as means to pursue business goals such as talent acquisition, scale, improved advisor productivity and growth,” David Canter, executive vice president, practice management and consulting at Fidelity Clearing & Custody Solutions, said in a statement that accompanied the report.
“This is a cautionary tale for firm owners, who may not yet consider themselves ‘sellers,’" he added. "There’s a tipping point where the valuation of their firms may decrease because they’re no longer able to help buyers achieve business goals. If growth wanes, they stop investing in the business. If their client base is aging without being replenished with younger clients, firm owners may risk losing out on the value they’ve worked so hard to create."
Fidelity contacted firms with $1 billion or more in assets to see what attributes they looked for in firms they wanted to acquire. Along with the location and size of a potential acquiree, other key facets included the firm's growth rate and client base. Acquirers also want to gauge the client experience at a target firm.
And the acquirers want to know if the firms they are acquiring have the same investment philosophy and how they treat their employees.
A harder to define characteristic is whether the acquirer and seller have the right chemistry. Acquirers look for compatible personalities among all partners and associates that are part of the deal, Fidelity says. This chemistry can be determined through lengthy conversations between the two stakeholders.