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M&A Is Here to Stay

Is now the time you should be looking to buy another practice?

David J. Drucker, 08/27/2009

It was recently reported in a weekly news publication that mergers and acquisitions within the financial services industry have taken some interesting twists and turns since the economy fell apart last year.

On average, the article said, prices for advisory firms have fallen about 20%. Likewise, downpayments are down 10% to 15%, earnout periods have increased from an average of five to seven years, and, as a result of all of this (and the effects of the flailing economy), observers expect a 20% increase in the number of firms being sold.

Is this true? And, if so, is it beneficial to you? After all, though many advisors shun the hard work required by acquisitions, they are one of the fastest ways to grow an advisory firm. If the numbers have become this favorable, is this a method of growth you should be seriously considering?

To get answers to these and other questions, I spoke to Dan Inveen, CFA, principal at FA Insight, LLC, and David DeVoe, director of mergers and acquisitions in the Strategic Business Development Group at Schwab Institutional.

Drucker: Dan, would you agree with these figures?

Inveen: In our view, M&A activity peaked in 2007 and dropped in 2008 and 2009. Now it appears to be at 2008 levels. On the buy side, we've got folks confident in their outlook on the future, and, on the sell side, we have a mix of firms that continue to see sale or merger as a strategic fit, and then there are those looking to sell to meet an immediate need...like the founding owner can no longer tolerate the stresses and strains of running the business, or partners aren't getting along. I've heard anecdotally that there are cases of smaller practices with older advisors who have been thinking about getting out of the business. The current economy has exasperated them and they want a quick exit. Some will be looking to fold into a bigger firm that might not allow an immediate exit but at least offers additional resources and the ability to share overhead that will take some of the [cost] pressure off.

Drucker: David?

DeVoe: M&As are continuing to show strength, year to date, in 2009--that is, they're still on track vis-a-vis 2007 and 2008.

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