Advisors' concern about Covid-19 could be driving M&A activity to new records, but sometimes to their detriment.
Former Pershing Advisor Solutions CEO Mark Tibergien said that some advisors have reacted rashly due to the Covid-19 pandemic and its resulting economic deceleration.
“This is a moment time that I think causes some to panic and to consider fire sales,” said TIbergien. “Those who have patience and the financial wherewithal to endure are just keeping the powder dry.”
In Echelon’s “Deals & Dealmakers Webcast, Keynote Debate No. 1: The Changing Formula of Success in M&A,” Tibergien noted that advisors flocked to apply for Payroll Protection Program loans, which were made available as part of the CARES Act coronavirus stimulus earlier this year.
“A PPP loan was a short-term solution, which suggests to me a state of panic in the minds of many for what was a short interruption to the marketplace,” said Tibergien.
Tibergien and Echelon CEO Dan Seivert each argued opposing sides of four topics during the webast, occasionally arguing against their own personal beliefs for sake of debate.
Is it a buyers’ market or a sellers’ market, from a deals perspective?
Tibergien, who is also an Echelon board member, argued that it’s currently a seller’s market for RIAs.
“There’s still a lot of money chasing deals, particularly private equity money,” said Tibergien. “If you look at the media, the number of announcements continues unabated. Every case where there is an advisory firm for sale, there are multiple buyers lining up.”
Sellers have the ability to set prices and establish beneficial terms for themselves, and can usually choose when they’re going to sell, said Tibergien. Buyers, on the other hand, have to be more strategic, especially since the onset of the Covid-19 pandemic.
Seivert said that while the prevailing narrative may be around a seller’s market existing for RIAs, his gut feeling is that it is still a buyer’s market.
“We read every day that so many firms are selling, and it looks like they’re actually doing well in their sales,” Seivert said.
Seivert said that there are a few good reasons it is a buyer’s market:
• EBITDA valuations for RIAs are low compared to other industries.
• Deal structures more often favor the buyer, which is usually a larger firm more experienced in transactions than the seller.
• Most of the buying is being done by a small percentage of firms.
• The number of sellers is lower than Seivert believes it should be.
“As a result, buyers are able to wield a lot of control in their negotiations over sellers,” said Seivert.
Asked about their true feelings, both Seivert and Tibergien said that the industry is in a mixed market favoring buyers and sellers.