Indeed, as consolidators and integrators made deals, they hired longtime industry leaders to oversee their acquisitions and fulfill a range of C-suite level responsibilities. At the same time, they also poured resources into first-rate technology solutions that improved the quality, delivery and accountability of their services.
To keep up, much of the competition adapted, which drove an industrywide modernization effort. The outcome is that RIAs have never been more professionally run.
The Elephant In The Room
The obvious question in the now suddenly harsh economic market environment: What will happen to M&A activity in the future?
In the short term, credit could be more challenging to come by, even with historically low interest rates, as lenders likely become more cautious. If that happens, some deals may be more difficult to complete, including many first-time purchases, which often require personal guarantees.
Some sellers, therefore, may try to wait things out, even as they are increasingly ready to scale back their day-to-day involvement, having grown tired of the administrative burdens that come with running a firm.
Many others, though, may not have that luxury. The sad reality is that as advisors continue to age, scores of them will have health issues that threaten their option to continue to work—an issue that only gets exacerbated by the coronavirus outbreak. Thankfully, for their sake, private equity money and other acquirers will provide them with options.
In the longer term, there is a silver lining: Thanks, in part, to how private equity has strengthened and professionalized the entire industry, RIA firms have never been more prepared to take on this challenge. So, if there is indeed a lull in activity, it’s unlikely to linger for too long.
Carolyn Armitage is a managing director with Echelon Partners, a Manhattan Beach, Calif.-based firm that provides M&A advisory, valuation, consulting and investment banking services to registered investment advisor firms across the country.