M&A activity in the global financial advice industry will continue to be high over the next few years, according to a report by international investment firm Dimensional.
Its 2020 Global Advisor Study surveyed around 1,000 independent advice firms globally with $368bn (£263bn, €308bn) in combined assets under management (AuM) and found nearly half would like to execute a merger or acquisition over the next 24 months.
Among the firms that are actively considering M&As, the top four responses indicated that 31% want to acquire a firm, 21% want to acquire a team, 9% want to merge, and 7% want to be acquired.
Some 62% of respondents have been contacted by firms interested in M&A, but only 3% of these firms have moved forward with a deal.
The study also found that over 80% of firms lack a “defined M&A strategy”.
M&A rationale
The most common reasons participants cited for their interests in M&A activity include increasing the value of their businesses, improving economies of scale, improving cashflows/profits, and acquiring human capital.
The most common deal-breakers reported in a sale or acquisition were lack of investment philosophy alignment (83%) and firm culture fit (82%).
But when a deal is ready to finalise, the average timeframe from signing a letter of intent to executing the agreement is less than three months.
Among the fastest-growing firms in the study, acquisition accounted for 20% of new clients and 30% of AuM growth.
Catherine Williams, Dimensional’s head of practice management, said: “As we heard from industry experts and seasoned acquirers in attendance at Dimensional’s recent deals and succession conference, buyers are looking for evidence of strong organic growth in the firms they are targeting for acquisition.
“Likewise, sellers want to understand how the acquiring firm will enhance services to clients and further their growth objectives.”
Succession
The study also highlighted the large number of advisers who are approaching retirement soon and need to consider their succession options.
Of the firms that have a documented succession plan, 46% are looking to execute their plans within the next 10 years.
When looking specifically at the succession timelines of sole practitioners, the study found that 43% plan to exit in five years or less.
Dimensional is headquartered in Austin, Texas, and has 13 global offices across North America, Europe, and Asia.
