3 Tips for Choosing the Right M&A Advisor for Your Wealth Management Firm

This is an AArete Financial Service’s insight

The wealth and asset management industry is in the midst of structural changes to its business model. A growing number of forward-thinking registered investment advisors (RIA) and money management firms are using this fundamental shift to expand market share through mergers and acquisitions despite today’s challenging economy.

After hitting record-high transaction volumes in 2022, M&A activity in the RIA sector has cooled this year. Fewer companies are changing hands due to several factors, most notably rising interest rates, turbulent securities markets (including a historic bond meltdown), and stubborn inflation, which is putting downward pressure on the value of assets under management, and operating profits.

Forward-thinking leaders, however, are seeing the current M&A lull as an opportunity to acquire quality wealth management companies at reasonable prices before the economy improves and asset values rebound. They also believe they can capitalize on transformational shifts in the wealth management sector – including rapidly improving digital technology to better serve clients, and increasing consumer demand for investment advice – to improve their business’s competitive position.

At AArete, we believe in the power of strategic M&A to drive growth and profitably scale a business. M&A can help organizations unlock or expedite synergies that organic growth cannot deliver. M&A requires experts who can deftly manage a wide range of activities, such as finding an ideal acquisition candidate, conducting due diligence, addressing any regulatory or compliance issues, and identifying operational synergies to capture sustained long-term value.

Most wealth management firms, especially small and midsize companies, do not have the necessary resources. That is why business owners and c-suite leaders should strongly consider partnering with an M&A advisor with a deep understanding of the sector’s risk, regulatory framework, and supplier landscape; one who can provide business strategy and change management solutions and data-driven insights to help you navigate the inherent complexities of a transaction. With that in mind, here are three important considerations when seeking an M&A advisor:

1. Choose an M&A advisor with extensive domain expertise

Domain expertise is crucial when selecting an M&A advisor because of the intricate and multifaceted nature of a transaction. An experienced partner can add value in the following areas:

Industry trends and issues: Domain expertise ensures that your company is partnering with an advisor who knows your industry’s market dynamics, competitive landscape, and regulations. This knowledge is crucial when conducting due diligence to assess a target company’s value.

Valuation: Sector expertise is essential to determining the fair market value of a merger or acquisition target. You need proven experts skilled in advanced valuation techniques (including discounted cash flow modeling) and have access to a proprietary database of industry deals to compare transaction multiples and deal structures.

Objectivity: Cognitive bias affects everyone, including business owners and decision-makers involved in buying a business. An unbiased advisor can help your team overcome any blind spots that may negatively affect identifying, pursuing, and valuing M&A targets.

Stakeholder communications: An experienced advisor can develop or improve supporting presentations to external stakeholders (lending equity institutions, equity providers, acquisition candidates) to help secure capital, accelerate the closing of a transaction, and/or develop a pipeline of future deals.

2. Partner with an advisor who has extensive data science, artificial intelligence, and analytics capabilities

Data science, artificial intelligence (AI), and analytics play a pivotal role by providing decision-makers with critical analysis and insight during the M&A process. Here are the key reasons why data-driven approaches are indispensable:

Financial analysis: AI-powered technology dramatically speeds up data collection and analysis. It also improves the accuracy of assessing the financial health, operational performance, and risk factors associated with an acquisition. By analyzing historical company financial data, market trends, and operational metrics, prospective acquirers can make more informed decisions regarding the suitability of the acquisition candidate.

Valuation modeling: Accurate financial modeling is vital in determining the terms and pricing of a deal. Today’s advanced business intelligence tools can provide a more comprehensive and precise assessment of a company’s worth. The technology can perform detailed sensitivity and scenario analyses that take in a wide range of macro and microeconomic factors (revenue and cost projections, historical transaction multiples, consumer behavior, industry trends, and regulatory roadblocks) that directly impact the value of a business.

Synergy analysis: AI can help evaluate potential synergies between the merging businesses. By analyzing a wide variety of data (client profiles, market demographics, and operational performance) to identify overlapping resources, complementary products or services, or potential market opportunities through AI, acquirers can gauge the likelihood of achieving the strategic benefits they seek.

Deal monitoring: An M&A advisor plays an invaluable role in ensuring that all the interconnected parts of a transaction are moving forward to meet an organization’s timeline. An advisor with a proven integration framework, digital tools, and related technologies can provide an organization with easy-to-understand dashboards and key performance indicators that help organizations monitor valuation model performance and measure transaction progress.

3. Seek an advisor with experience integrating acquisitions

Closing a transaction is only part of the M&A process. Wealth management companies often need the counsel of an outside advisor to help integrate an acquisition. A multi-disciplinary team of financial, data science, and operations experts can help ensure your company stays on track with its integration plan, overcomes unexpected roadblocks, and realizes the financial and strategic value of the new business.

Buying or selling a business is a daunting task, regardless of the industry. AArete has served as an advisor to leading multinational and regional financial institutions, helping them grow and transform their companies through strategic M&A.

Warren Buffett famously said, “Price is what you pay. Value is what you get.” AArete can help you capture sustained, long-term value on your next transaction and help position your business for future success.

If you believe your company could benefit from our proven M&A expertise, or need advice on related wealth management strategies, reach out to us today. We are ready to help.

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Meet The Authors

Christopher McGee

Christopher McGee

Managing Director

Priya Iragavarapu

Priya Iragavarapu

Vice President of Data Science & Analytics