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How an RIA found its M&A soul mate

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At least four other suitors, including an aggregator, a large RIA and even an accounting firm wanted to buy Donnelly Wealth Advisors, a thriving RIA in San Diego with approximately $408 million in assets under management.

"The only thing important to [the aggregator] was the numbers," says Rich Donnelly, the firm's founder and president. "We were not finding the fit with who we are with the others. After two and a half years we were getting frustrated."

But that frustration began to dissipate last year when Donnelly started talking to Brian Parker and Derek Holman, co-founders and managing directors at EP Wealth Advisors, a $3.6 billion RIA that announced Monday it would buy Donnelly's firm. Last year EP became part of Wealth Partners Capital Group, a holding company intent on consolidating small and mid-sized advisory firms around the country.

Although Parker and Holman's firm is based in Torrance, California next to Los Angeles, it turned out they were San Diego natives. Even more important, Donnelly says, they shared his business philosophy emphasizing life planning as well as financial planning and portfolio management when working with clients.
Those shared values were important considerations, Donnelly adds, because, at age 65, he was also looking for a succession plan to keep his junior executives and the firm's modus operandi intact.

"They lived up to what I believed," he says.

As for the financial side of the decision, Donnelly says he received a combination of cash and equity from EP and Wealth Partners, but did not specify details. Compared with the other deal term offers he received, "the spread wasn't that big," he says. The money "was not a huge differentiator."

Rich Donnelly says he was getting several inquiries about his firm a week.

Donnelly, who founded the firm in 1997 and says he was getting several inquiries about his firm a week, didn't see much synergy resulting from a union with other potential buyers.

"How were they going to help us improve and add capability? I didn't see it," he says.

In addition to sharing EP's adherence to George Kinder's life planning philosophy, Donnelly says he was impressed by Wealth Partners' plans to grow nationally by building around three regional hubs: EP in the Southwest and West Coast; MAI Capital Management in the Midwest; and Forbes Family Trust on the East Coast. Forbes Family Trust also caters to high- and ultrahigh-net-worth clients.

"The business is becoming more capital intensive," he says. "Firms need greater financial capability to pay for the tech improvements and qualified staff you're going to need going forward. We were not going to be able to do that on our own."

Donnelly will become a regional director for EP in San Diego. Bradley Owen and Adam Werner, his top next-generation advisors, will join him as partners at EP, says the firm's president and CEO Patrick Goshtigian.

EP currently has eight offices in the region and is looking to expand in Colorado, the Pacific Northwest and California, says Goshtigian. The Donnelly deal marks the RIA's third acquisition in California in the last 12 months.

"The larger part of our growth will be inorganic," Goshtigian says. "We believe there's so much fragmentation there's still a lot of room for growth. There's a lot of need for succession plans and liquidity. We think the industry will have a classic barbell shape with a handful of national, or super-reginal firms at one end, and we want to be one of them."

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