Succession Resource Group Research Reveals All-Time Highs In Advisor Valuations For 2024

In a recent unveiling by Succession Resource Group, Inc. (SRG), the advisor acquisition landscape has been meticulously detailed in their eighth annual review. The report sheds light on 188 transactions, encapsulating over $25 billion in assets under management. This analysis comes at a time when the market navigates through a high-interest rate environment, yet remains buoyed by strong demand, accessible capital, and an inclination towards larger buyers capable of scaling effectively. Notably, the average RIA/recurring revenue multiple ascended to 3.02, marking a resilient and sustained momentum in the M&A sector.

The report highlights a 7.9% increase in the average recurring multiple, now at 3.02 from the previous year's 2.80. This uptick aligns with the growth of EBITDA multiples during the same timeframe. A significant driver behind this value appreciation is sustainable growth, particularly among larger firms that exhibit consistent growth and profitability, thus commanding higher multiples. Furthermore, advisors receiving sell-side support in competitive bidding scenarios saw a 10.5% increase in purchase price and a 27.9% boost in down payments compared to off-market peer transactions. Additionally, there's been a noticeable rise in out-of-state buyers, with 25% of all 2024 deals involving cross-state acquisitions.

Despite anticipations of a slowdown due to interest rates, deal volume in 2023 surpassed that of 2022, albeit not meeting projections. The buyer-to-seller ratio stood at an impressive 85:1 in 2024, underscoring robust buyer demand even amidst elevated interest rates. The availability of third-party financing is also on an upward trajectory, with many broker-dealers offering loans at competitive rates to support advisors' growth strategies. Interestingly, deals facilitated through third-party financing witnessed an average down payment of 86%, starkly higher than the 14% for transactions without lender involvement.

Internal succession planning is witnessing an earlier onset among firms, with the average plan unfolding over six years—a year longer than previous practices yet shorter than SRG's recommendations. A majority (58%) of those engaged in succession planning are now incorporating external capital to aid next-gen advisors in their buy-in processes.

Private equity-backed aggregators are playing a pivotal role in driving up valuations, perceived to be offering above-average values for acquisitions. Despite this perception, private equity entities are known for their strategic acquisition prowess without necessarily overpaying for businesses. They often employ creative deal structures that include equity stakes and contingent financing based on ambitious growth targets.

Looking ahead into 2024, David Grau Jr., President of Succession Resource Group, anticipates a vibrant advisor M&A market, propelled by strong demand and high valuations irrespective of Federal Reserve's interest rate decisions. Grau Jr. draws parallels to the flurry of deal activities witnessed during the 2008/2009 market corrections and regulatory changes, suggesting a similar trend could unfold should such circumstances recur.

Succession Resource Group stands as a beacon for advisors across the United States seeking expertise in valuation and succession planning. Under the leadership of David Grau Jr., SRG has carved a niche in assisting advisors with valuation enhancements, equity structure formalization, and exit planning among other services.

For more insights into navigating the complexities of advisor acquisitions and succession planning, visit www.successionresource.com.