The registered investment adviser (RIA) and independent broker/dealer industries have been in the eye of the M&A storm since 2019. According to Fidelity’s latest Wealth Management M&A Transaction Report, the pressure for financial services firms to scale and the pervasiveness of prepared buyers who hold significant capital in a low interest rate environment continue to fuel record transaction activity.

Through the first 11 months of 2019, Fidelity reports that there have been more than 115 registered investment adviser (RIA) transactions – that’s up 36% over the same time period in 2018 and represents $146 billion in AUM, which is up 34% over 2018! Year-to-date, there have been 11 independent broker/dealer transactions, representing $628.7 billion in assets, up significantly from 2018, which had only eight transactions representing $453 billion (Fidelity Investments, 2020).

So, why are independent business owners merging their firms into larger enterprises? The answer is that “scale matters,” and real benefits can be derived from merging a smaller independent firm into an enterprise level independent organization. What we define as an independent firm is a firm with $1B+ in AUM that is profitable, with a robust platform and infrastructure, real capacity and a strategy for growth and a solid succession plan.

A successful merger may result in synergy creation and expand market coverage, which generates more value from a long-run perspective. Here are a few key benefits of mergers:

Succession: Many business owners struggle to identify a successor that is the right cultural fit and also has access to capital to buy the owner out at retirement. Merging into a large firm with deep pockets and with the next generation determined solves for succession.

Economies of Scale: The combined entity resulting from a successful merge will have more resources at its command than an individual entity. This will help in increasing the scale of operations, and the economies of large scale will be availed. There will also be a more intensive utilization of resources, and this will improve the performance efficiency while reducing the across-the-board costs.

Growth: Mergers can give the acquiring company an opportunity to grow market share without doing significant heavy lifting – acquirers simply buy a competitor's business for a certain price in what is usually referred to as a horizontal merger. For example, a beer company may choose to buy out a smaller competing brewery, enabling the smaller brewery to be able to produce more beer and increase its sales to brand-loyal customers.

Enhanced infrastructure: Big firms offer a fully built-out support infrastructure that small firms simply cannot afford. Access to a dedicated CCO, CIO, HNW planners and a strong suite of operations and administrative staff lets a business owner enhance client services and disengage from the day-to-day minutia of running the firm. This translates into more time spent on client facing and new business building activities.

Benefit in tax gains: One of the benefits of the merger is the tax gains and revenue enhancement through market share. Joint companies generally expect more value from separate firms after a merger.

The e-Merge Program from Succession Link is a customized matching service for those interested in Merging or being Acquired. The program provides concierge support through the entire M&A process, providing you with matches and introductions so you can find the ideal long-term relationship and gain success.

Check out and learn more about working with us on your M&A agenda.

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