Peter Nesvold of Nesvold Capital Partners says he can remember a time when an advisory practice selling for 10 times its EBITDA seemed outlandish.Now it’s not unheard of for RIAs to fetch 20 times EBITDA — a common profitability measure standing for earnings before interest, taxes, depreciation and amortization. Driving much of the skywards leap in valuations are large aggregator firms deriving their financial fuel from private equity.If 10-times EBITDA once seemed unimaginable, now it’s a “50% premium on that,” said Nesvold, whose firm is a consultant and investment bank specializing in wealth management mergers and acquisitions. And there’s no sign that purchase prices have hit anything like a peak.”Trees don’t grow to the sky, as the saying goes,” Nesvold said. “But valuations continue to nudge upwards.”READ MORE:How to improve your RIA valuation in this — or any — market6 ways independent wealth management firms are consolidatingRIA deals smash another record, but things are still only starting, DeVoe saysPE-backed acquisitions plow ahead with Arax buying $1.7B RIAWhy last year’s M&A drop-off may already be overThat’s not to say every owner of an RIA considering a sale can simply expect a 20-fold payout. No one likes to hear the words “it depends,” but that’s the only accurate way to sum up firms’ valuation prospects, said David DeVoe, the founder and CEO of the M&A consulting firm DeVoe & Co.The variables influencing acquisition prices run the gamut from a firm’s assets under management and the strength of its management team to its ability to bring in young talent and achieve business expansion on its own without counting market gaints or other extraneous influencese. DeVoe, for instance, that every 1% increase in such “organic” growth corresponds with a 7% rise in its valuation.Even so, it’s only the biggest firms that can reasonably expect tip-top valuations from purchasers, DeVoe said.”If an investment banker tells you they can sell your firm for over 20 times EBITDA, you should hang up,” he said. “Unless your firm has tens of billions in AUM, they are deceiving you.”Much also depends, DeVoe said, on the acquirer itself. Private equity-backed aggregators are often willing to pay top dollar because they see themselves in a race to gobble up the best RIAs before their rivals do. When a firm with proven profitability and established plan for growth under capable managers comes into the sights of private equity investors, that’s when valuations can skyrocket, DeVoe said. And there are plenty of eager buyers out there.Firms like Focus Financial Partners, with roughly $400 billion under management; Creative Planning, with more than $245 billion under management; Hightower Advisors, with roughly $130 billion; and Mariner Wealth Advisors, with more than $114 billion, have all used a series of rapid purchases to redefine the definition of what it means to be a large aggregator.”Larger seasoned acquirers, including private equit
Mer. Gen 8th, 2025
