FP Transitions’ James Fisher On How Different Sized Firms Can Evaluate M&A Deals

Chris Latham, Deputy Managing Editor, Wealth Solutions Report

James Fisher Of FP Transitions Discusses What Buyers Of Small, Mid-Sized And Large Firms Must Consider When Evaluating M&A Deals In The Current Volatile Market

Financial advisor transitions are among the biggest decisions one can make in this industry. When an advisor is determining how to switch firms or conduct an M&A deal for their business, it may seem as though their whole world is in flux. That is where transition specialists can add real value for advisors. 

James Fisher, VP of Mergers & Acquisitions, FP Transitions

To learn more about the process, we spoke with James Fisher, J.D., VP of Mergers & Acquisitions at FP Transitions, a Lake Oswego, Oregon-based consultancy operating nationwide and focused on the wealth management space. In this Q&A, Fisher shares why FP Transitions was founded, how the company has evolved over the years, as well as what acquirers of various sizes must consider when pursuing M&A deals in the current volatile market environment. 


WSR: Why was FP Transitions started, and how has the business evolved since then?

Fisher: Since opening our doors in 1999, FP Transitions has completed more M&A transactions in the wealth management space than any other firm and more than 15,000 business valuations. We are famous for literally defining the term “Succession Planning” and for pioneering the concept of growing and strengthening a business by using equity to attract and retain talent and allowing them to buy-in incrementally, making this route a viable alternative to selling to a third party. 


Having one of the largest full-service M&A departments in the wealth management space, FP Transitions’ M&A team executes hundreds of deals annually, and assists both buyers and sellers with deal structuring expertise, cash flow analysis, customized documentation, seller financing, bank financing support and much more. The differentiator for FP is that it is a consulting firm at its core, which is apparent when you look at FP’s bench strength of industry professionals and credentialed staff.  


FP also offers both Enterprise Consulting and its digitally accessible Equity Management Solutions (EMS). The Enterprise Consulting services offered by FP are robust and project-based, serving firms navigating entity structure options, equity pathways, compensation restructuring, mergers and acquisitions and growth strategies. Our EMS program is built for firms seeking to protect, value and grow their wealth management practice through consulting and benchmarking tailored to their firm. 


Having carved a unique niche, FP Transitions’ leadership team continues to seek best-in-class services to enhance and protect an owners’ biggest asset – their business.

WSR: In general, where does FP Transitions see wealth management firm valuations and the broader M&A market heading? Why?

Fisher: We’ve seen more activity in the mergers and acquisitions marketplace right now than we have ever seen. Last year we supported 135 transactions, and this year our team is even busier. The current market volatility has not affected industry demand for M&A. Value multiples continue to remain strong and deal structures favorable from a seller’s perspective. In short, it is still very much a seller’s market.   

Transactions priced for a rebound

What has been affected lately are the potential deal structures.  

We are currently seeing transactions priced with the assumption that the market is going to rebound. Most parties are still use trailing 12-month revenues as the projected target to reach. While most sellers have seen a decline in revenues this year, many of the acquiring firms are providing sellers the ability to recapture any potential decline in consideration at closing in future contingent payments.

WSR: Can you take us through what different buyers can expect when conducting M&A? Let’s begin with a smaller practice of under $100 million in assets under management (AUM).

Fisher: Here, we’re probably talking under $1 million value and would consider this a “book of business.” These books of business are typically a solo advisor with maybe one support staff member. Many times, a solo advisor has not established a formal succession plan and is now looking for a traditional sale of the book. When we’re seeing deals come together at this level it’s all about the synergies in service models and ensuring the clients are going to be well taken care of by the acquirer.

From a buyer perspective, you must clearly demonstrate your ability to absorb these acquired clients into your organization, with proper staffing and a synergistically aligned service offering. While we occasionally see a broker-dealer or custodial change in smaller transactions, this is not the norm and most transactions under $1 million in value are looking to find a firm that will cause minimal disruption, which includes minimizing the paperwork necessary to transition the client relationships. 

WSR: How about considerations for mid-sized businesses with AUM of $100 million to $1 billion?

Fisher: How a $150 million AUM firm operates is likely very different than an $850 million AUM firm. These businesses typically have support staff and several advisors, and are building out systems and processes. Interested acquirers of these businesses need to expect that they are not only acquiring assets, but also acquiring talent. (This is actually one of the ways we see firms growing their staff during this labor market.)

Acquisitions can bring a deep bench of experts

Given advisors and staff are now part of the acquisition equation, acquirers of these types of businesses must be able to absorb not only the client assets, but also the businesses’ employees and advisors. If you can’t or don’t want to absorb talent, then we recommend looking at acquiring books of businesses for sale instead of these larger ones.

In determining whether or not to absorb talent as part of an acquisition strategy, remember many of these employees are seasoned professionals with strong relationships with the clients. They can make transitioning the clients to your firm a much smoother process, reduce retention risk and provide you with a deeper bench post-acquisition. 

WSR: What about major deal factors for larger firms with AUM above $1 billion?

Fisher:
The infrastructure of a large firm when compared to a medium-sized business is substantially more complex. Large firms typically have a C-suite whose leaders each are primarily focused on managing a certain aspect of the firm. Given the potential duplication of roles, the complications of acquiring a large firm grow exponentially compared to even the complications associated with acquiring a medium-sized business. 

Consider the types of services and technology for these firms, as well. When seeking an acquisition at this level, buyers must have a strong ability to absorb talent and clients, as well as navigate a seamless transfer of assets, which may include a technology platform change or that platform being acquired or merged.  

WSR: Any predictions in closing?

Deal-making remains afloat despite market volatility

Fisher: This year has been interesting for M&A because while we’re experiencing market volatility, demand for buying and selling has remained high. It does not appear as though we are near a shift in the supply and demand equation, meaning there is still a huge demand, but a lack of supply.

We also expect to continue to see a sellers’ market despite rising interest rates because of the ability to deploy mitigating deal structures, including seller financing strategies that solve for that. Lastly, as everyone always wants to talk multiples … we don’t see the multiples, revenue or EBITDA declining.

Chris Latham, Deputy Managing Editor at Wealth Solutions Report, can be reached at clatham@wealthsolutionsreport.com

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