The high end of the wealth management market is a very, very good place to be right now.
Valuations for advisory firms with over $500 million in assets under management are expected to escalate in the wake of this month's Boston Private Bank and Trust's $60 million acquisition of Banyan Partners -- made at what sources say was a valuation of nine times EBITDA.
The high-profile sale is also expected to goose interest from well-capitalized financial companies seeking to pick off independent RIAs that have hefty assets, wealthy clients and a steady fee-based revenue stream.
"I think the Boston Private deal will light a spark and get people back in the market," says Marty Bicknell, chief executive of Mariner Wealth Advisors -- the $10 billion-plus aggregator based in Leawood, Kan. "The more people you have on the buy side is good news."
Prices for "the better firms" will be driven up as a result of the Boston Private-Banyan deal, says another acquirer -- Matt Cooper, president of Beacon Pointe Advisors in Newport Beach, Calif. -- and competition for them will be fiercer, he believes.
"Capital is going to be king, and the number of firms on the buy side will start to narrow," Cooper explains. "In the end, the best firms will be able to execute, and the others will be left on the sidelines."
There's no question that acquirers with deep pockets will be "seeking firms of scale with ultrahigh-net-worth clients," says San Francisco-based industry consultant and mergers and acquisitions specialist David DeVoe. "The Boston Private-Banyan deal is the first of more to come."
But the big game hunters are likely to range widely, sources say. Among the key players, both by category and by name:
- Banks: Arguably, First Republic bank kicked the valuation of high-end wealth management firms into high gear in 2012 when it bought 4-year-old Luminous for $125 million. Other big players in the UHNW RIA space include Bank of Montreal, which owns CTC/myCFO through its BMO Harris bank subsidiary, and Canadian Imperial Bank of Commerce, which bought Atlantic Trust last year. "It's rarified air when it comes to who can buy these large enterprise plays," agrees Felipe Luna, chief executive of Concert Wealth Management. "Banks are strategic buyers looking for revenue generators they can aggregate with their lending and trust assets."
- Private equity: These firms, industry sources say, now have the big money to make deals in the high-end space. They back fast-growing and ambitious aggregators, such as Focus Financial Partners, but expect a substantial return in a relatively limited time period. Private equity firms who either have invested in or are considered likely to back RIA acquirers include KKR, Carlyle Group, Blackstone, Apollo Global Management, Stone Point Capital, Rosemont Investment Partners, Lovell Minnick Partners, Grail Partners and Bessemer Venture Capital: "The PE role is to throw gasoline on the fire," says David Selig, chief executive and founder of Advice Dynamics Partners, an M&A advisory firm in Mill Valley, Calif. "Most have a five- year fuse or shorter so need to see rapid growth, followed by a rapid liquidity event. Once an aggregator has $10 million in EBITDA, they get on the PE radar screens. Below that, not so much."
- Focus Financial Partners: Focus is itself one of the industry's leading aggregators. While Focus doesn't target high-end firms exclusively, it doesn't exclude them either, and encourages RIAs already in the fold to go forth and multiply. Among Focus' most aggressive firms is Colony Group: It bought Mintz Levin Financial Advisors, a $1 billion Boston-based firm, in 2012 and New York's Prosper Advisors, which had about $300 million in AUM, last year. Colony's latest acquisition is Boston-based Long Wharf Investors, which has roughly $200 million in assets. Colony is now approaching $4 billion in assets and "remains a disciplined buyer of high-quality registered investment advisors," says chief executive Michael Nathanson.
- Boston Private: Peter Raimondi took just six years to build Banyan Partners into an RIA powerhouse with $9 billion in AUM. Boston Private chief executive and president Clayton Deutsch has said he is expecting more of the same from Raimondi once Banyan is inside the Boston Private fold, and is arming Raimondi with the bank's considerable war chest.
- AMG Wealth Partners: The wealth management division of Affiliated Managers Group, the deep-pocketed asset management firm with close to $600 billion in assets, recently poached Rich Gill -- who in seven years at Focus was responsible for transitioning about $10 billion worth of breakaway broker business to the firm. Expect AMG to get serious about adding more high-profile RIAs to its current three-firm, $20 billion-plus roster once Gill starts work next month. "Rich will be responsible for helping us identify outstanding firms and teams," an AMG spokesman said when Gill was hired.
- Mariner Wealth Advisors: Talk about stalking big game: Mariner's last two acquisitions were for firms with assets under management of $817 million (Housen Financial Group in New Jersey, earlier this year) and $780 million (RR Advisory Group in New York City last year). "We've been actively searching all year for planning-focused firms that are the right fit, and think there's still a lot of opportunity in the market," says Bicknell.
A host of other firms have also been aggressive acquirers. Among those considered likely to eye higher-end firms are Beacon Pointe (based in Newport Beach, Calif.), Savant Capital (Rockford, Ill.), Highline Wealth Management (Rockville, Md.), Exencial Wealth Advisor (Oklahoma City), EP Wealth Advisors (Los Angeles), Fiduciary Network (Dallas) and United Capital (Newport Beach, Calif.).
Another potential player is Bel Air Investment Advisors, a $7 billion Los Angeles firm specializing in very wealthy clients. Bel Air was acquired by Fiera Capital, a Canadian investment management firm, last year; and because it's known for superb salesmanship, Bel Air was expected to be Fiera's vehicle for further U.S. acquisitions -- but none have materialized to date.
There's also Aspiriant, which has around $8 billion in AUM following a major merger of two California-based firms in 2008. Aspiriant had earlier announced plans for a national footprint offering high-end wealth management services fueled by sizable acquisitions. But this year the firm has decided to "resume our organic growth by adding talent in Silicon Valley, Los Angeles and San Francisco," says chief executive Rob Francais, "and will look to expand further later this year in some of the cities [where] we already have a presence" -- a list that includes New York, Boston, Minneapolis and Cincinnati.
BIGGER FIRMS, HIGHER MULTIPLES
Yet as would-be buyers stalk their prey, the Boston Private-Banyan deal also puts more pressure on smaller firms, which probably need to grow faster to command higher prices.
"Banyan's valuation is a validation that big firms growing at a good rate are worth more," says RIA industry consultant John Furey, principal of Advisor Growth Strategies in Phoenix. "Banyan selling at a reported nine times cash flow is about 50% more than firms with less than $500 million in AUM are valued for. That's a nice premium."
Selig agrees. "Banyan has spent years developing operational scale and an organic growth engine -- two of the primary drivers of enterprise value," he says. "Combine this with a top-tier management team and attractive high-net-worth clientele, and it's clear why Boston Private is willing to pay $60 million."
The high reported valuation should be a "stretch goal" for other large RIAs to shoot for, Selig says.
"Firms with AUM in the low billions are often valued at seven to nine times EBITDA," he says. "So, from my viewpoint, Banyan's valuation was on the high end of this range.
"That's not to say that BP overpaid," Selig adds. "There is a limited supply of top quality RIAs having the 'right stuff' like Banyan Partners. Suitors are clearly prepared to pay nine times or more for these gems."
Those higher multiples may also present a challenge for buyers, however.
The price Boston Private paid for Banyan and the deal structure also "raise the bar for other consolidators," notes Jeff Spears, co-founder and chief executive of Sanctuary Wealth Services, a San Francisco-based outsourcing provider for independent wealth managers. "At 65% cash and 35% public equity -- without the need to wait for an IPO -- the impact of the deal is significant."
Still, not everyone believes that the Boston Private deal -- or bank acquisitions, more broadly -- are a harbinger of things to come in the RIA business.
"We do not believe the Boston Private-Banyan deal will have a significant impact on industry deals, especially as it relates to transactions between and among advisors themselves," says Colony Group's Nathanson. "Like many bank deals, this one appears to be priced based on specific synergies that the parties hope to realize on a combined basis. Our industry has seen a handful of analogous deals, and history would suggest that the M&A market for RIAs recognizes these deals as outliers."
Another RIA executive, who does not want to be identified, has an even harsher assessment of banks. "Banks and the independent advisory model do not fit," the executive says. "Banks are product distribution mechanisms.
"There are a lot of banks around; if a wealth management client wanted to be served by a bank, they would have chosen a bank," the executive continues. "Look what happens when banks buy independent advisory firms. Look at Boston Private's own previous history; look at what happened to GenSpring and Wilmington Trust after they were bought by banks.
"When firms are bought by banks," the executive adds, "what we see is a lot of asset migration."
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