FWR”s US correspondent was recently involved in a webinar to glean insights from some of the most active acquirers of wealth firms in North America. The businesses are all backed by private equity – a notable trend. Here is what they had to say.
Trying to navigate the swirling currents of the turbulent RIA
M&A market – and wondering how exactly private equity fits
in?
Three of the wealth management industry’s most active acquirers
– who all have substantial PE backing – shared their
insights at an M&A webinar sponsored by Advisor
Growth Strategies.
If an RIA is approached by a private equity investor, what should
they keep in mind?
Matt Cooper, president of Beacon Pointe Advisors (backed
by KKR): “If you’re going to step into the ring with private
equity, make sure you have sell side representation. You want to
run an auction type process with private equity firms and take
your time, don’t be in a rush. Having done this twice now, make
sure that you have every detail agreed to before you sign a
binding purchase agreement.
“If you leave anything to be negotiated after a binding purchase
agreement, the private equity firm has all the leverage. So make
sure you get it all dialed in prior to signing that purchase
agreement. And I highly suggest that any meetings done with
private equity are done in person, because they’re going to be
your partner.”
Claire O’Keefe, head of partner development at Cerity
Partners (backed by Genstar Capital and Lightyear Capital):
“We’ve looked for capital partners who have great reputations in
the marketplace, who invest in high growth firms, who help to
accelerate a firm’s growth, not just by investing capital, but
it’s also the strategic relationships, the strategy that they
have.”
Marty Bicknell, CEO of Mariner Wealth Advisor (backed by
Leonard Green and Partners): “Be clear on what you’re trying to
accomplish in the first place and ask what traits you want from
who is on the other side.”
John Furey, founder of Advisor Growth Strategies: “As a
firm that has run processes for private equity, what’s incredibly
critical for multi-partner firms is partner alignment. That has
to be all buttoned up. You don’t want to have any sense that the
partners are not on the same page when you’re negotiating with a
professional investor.”
What do you tell potential sellers when they ask what they can
expect from firms like yours that have major private equity
partners?
O’Keefe: “It’s very much a strategic relationship. We
have a monthly partners’ call and a monthly financial meeting
[to discuss] the budget and investments. We have a quarterly
board meeting with our capital partners. We share firm
financials. We make sure that we’re communicating on the success
that we’re having as a group of partners, as we build and grow
together.”
Bicknell: “From our perspective at Mariner, it’s not a
partnership set up. It was very important for me [to convey] in
the conversation I have with potential acquisitions is that I’m
in control, right? So yes, we have a private equity partner, but
I control the board. I still get to make all the decisions. Good
or bad, that that is the setup of the organization.
“The purpose of bringing them in for us was capital and strategy.
Having them at the table truly helping us plan out where the
focus should be for the next three, five, seven and 10
years. By bringing in a private equity partner, 150 Mariner
employees became shareholders. I tell potential new firms that
their talent will [let them] have the opportunity to become
shareholders as well.”
Cooper: “Everything we do is geared around alignment,
including our private equity partner. A lot of times when you
hear about these outsized multiples for investments in platform
firms, they come with a lot of preference and structure that
favors the PE firm versus the client and the team and the other
shareholders. So it was important for us that our partner be a
common shareholder, that we could work well with them as people,
and that they had internal resources that made us better.
“In KKR’s case, they have something called Capstone, which is an
internal group of roughly a hundred expert operators in different
areas of business that we can draw on to help us as we evolve the
business. They bought a little bit less than half of the company.
They do have board control, but they let us run the company day
to day.”
As buyers, what are Beacon Pointe, Mariner and Cerity looking
for?
Cooper: “Size wise, $300 million to $3 billion is kind
of our sweet spot. Firms should be planning-oriented, focused on
the relationship with the client and creating value. What we’re
really looking for are confident, self-starting creative
entrepeneurs really that have amazing EQ and humility to work
very well in a large group of [like-minded] people. No jerks
allowed.”
Bicknell: “Talent. You have to be highly interested in
developing and building talent. Growth. We’re planting a stake in
the ground and now it’s time to grow, right? What is the value
prop? What is the client experience? Is there an opportunity for
us to enhance it?”
O’Keefe: “Are we culturally compatible? Do we serve a
similar client demographic? What is the benefit of both parties
coming together? Two plus two should equal something greater than
four.
“Economically, are we philosophically aligned? In addition to
cash compensation, we also have to have equity and incentive
equity. We certainly seek to make sure that the business is
financially and organizationally sound, looking at historical
financials and client and asset flows. Are there concentration
risks? Is there NextGen talent? Is there a lack thereof?”
What advice would you give RIAs who want to be buyers?
Furey: “Articulate your ideal partner. What are you
trying to get through a transaction? Set up a gap analysis to
improve your attractiveness. Once that’s identified, maximize
your attractiveness.”
Bicknell: “I think the most important thing to do is
figure out what your value proposition is to the firm you’re
trying to acquire. Why would they want be part of your
organization?”
