Today's Viewpoint: A MarshBerry Publication

What is My Wealth Advisory Firm Worth?

As the volume of wealth advisory merger & acquisition transactions continues to rise, many firms are wondering if this is the right time to sell. With private equity backed buyers driving demand and pushing up valuations – it begs the question that many RIA owners ask, “What is my business worth?”

Private equity backed buyers are currently investing heavily in the wealth management space which includes Registered Investment Advisors (RIAs), wealth advisors and retirement specialists. Despite concerns over macroeconomic conditions and the rising cost of debt – all indicators are pointing to plenty of dry powder to support continued demand. Many wealth advisory firms receiving private equity capital are focused on building infrastructure, expanding services and capabilities, and embracing technologies to attract investors with the promise of delivering a higher level of service to advisors and to the modern client who expects highly personalized, real-time service.

With all of the buying activity and strong valuations, many business owners are wondering if now is the right time to sell, and more importantly, whether they could fetch an attractive price.

The answer is not so simple – and value is dependent on multiple factors, including whether buyers are internal or external. At the very least, owners should know what they are worth and look for ways to improve their business operations and put themselves in the best position to create more value – should the opportunity to sell externally or perpetuate internally present itself. It all starts with understanding how valuation works.

The Valuation Gap: Internal vs External Value

There are a countless number of variables that figure into what a buyer will actually pay. And those variables are different for external vs. internal buyers. The discrepancy between external and internal value is often referred to as the valuation gap.

So, why would a business be valued at a higher price for an external buyer than for someone who’s been working at your business for years and wants to become its owner? This is a point that confuses many owners, even those who have been in the business for decades.

While there are multiple factors, the gap between external and internal value lies in both the level of profitability and the multiple a buyer can, or be willing to, pay. At its core – an external buyer may simply have strategic motivation for paying more, have better access to capital and be able to afford to pay a higher multiple on the profit. Internal buyers may not have the ability to pay what an owner wants or may need cash flow to finance the debt that enabled the transaction. Owners can help to try and close this gap and improve internal value by going back to the strategy and continually working to improve operations and growth.

Improving Value With a Growth Strategy

Having the right growth strategy in place is a game-changer in a valuation. Look at where your business operations stand today. What are you doing to drive profitability? Are you operating with a “same-old” mentality or have you challenged your organization and people to improve production? Do you have a sales culture? Have you recruited young blood and given younger advisors opportunities to take on more responsibility and rise in the company? Are there ownership opportunities for senior advisors?

Asking these critical “strategy” questions is important because your business will likely not get the valuation you hope for if everyday business operations are on autopilot. If your goal is to maximize value – then you first must look inside and make changes to improve profitability, sales performance and recruiting. Working with a knowledgeable industry consultant to improve operations is a wise step as you embark on a potential sale, or simply wish to improve your business.

If you dedicate time and resources to improving your business operations with a mind toward its long-term health and success – and not just how it looks on paper – then its value will escalate. MarshBerry often points out that if you run your business like it’s for sale, you win whether you sell internally or externally.

Wealth advisors dedicate their careers and make sacrifices in life to grow their businesses. Keep that momentum as you near the finish line, whether that’s an external sale or internal perpetuation. By doing so, you’ll help to continue to improve the value of your business and, ultimately, what you’ll take to the bank.

If you think you are ready to start the conversation about exploring strategic partnerships or would like to learn more about how MarshBerry can help you drive value for your business, please email or call Kim Kovalski, Managing Director, at 440.769.0322.

Investment banking services offered through MarshBerry Capital, LLC, Member FINRA and SIPC, and an affiliate of Marsh, Berry & Company, LLC, 28601 Chagrin Blvd, Suite 400, Woodmere, OH 44122 (440) 354-3230

MarshBerry is your trusted advisor in the wealth industry.

MarshBerry is a leading sell side advisor in the financial services industry with specialty practices in insurance and wealth management. Our advisory and consulting practices support advisors throughout their business lifecycles and include sell-side advisory, perpetuation planning, equity and debt capital raises, business and strategic planning, valuations, and industry benchmarking. Learn more about MarshBerry’s Wealth Advisory services.

Contact Kim Kovalski
If you have questions about Today's ViewPoint, or would like to learn more about how MarshBerry can help your firm determine its path forward, please email or call Kim Kovalski, Managing Director, at 440.769.0322.

MarshBerry continues to be the #1 sell side advisor in the industry (as ranked by S&P Global). If you’re considering selling your firm, we are the best choice to help you through the complicated process. If you don’t hire MarshBerry, hire a reputable advisor that can help you navigate one of the most important business decisions you will ever make. You will be much better off having an advisor in your corner that knows the industry than trying to do this on your own.