Hightower’s Optimistic 2024 M&A Outlook

James Miller, Contributing Editor & Research Analyst, Wealth Solutions Report

‘Still In The Early Phases Of Consolidation’ – Chief Growth Officer Expects Strong Deal Flow, Solid Valuations, More Equity, Greater Scrutiny And Longer Deal Cycles

Recently, we brought you our CEO Larry Roth’s quarterly M&A review, surveying the current M&A landscape and the views and strategies of veterans in the space, and covering cultural trends, demographic shifts, and the methods that some firms utilize to conduct M&A.

Today, we add to those expert views the 2024 M&A outlook of Scott Holsopple, Chief Growth Officer at Hightower, where he oversees the M&A, integration management, marketing and advisor engagement teams. Holsopple explains the reasoning behind his optimistic views on M&A and points out key trends in due diligence, packages and deal structures that advisors should look for in the upcoming year.

Scott Holsopple, Chief Growth Officer, Hightower

WSR: Is there a slowdown coming in wealth management M&A next year? What are the primary factors for your views?

Holsopple: While it may not have been another record-level year in terms of number of deals in the RIA space, M&A activity remained robust and is poised to ramp up again heading into 2024. There is no question: Wealth management is still in the early phases of consolidation, and deal activity should remain strong over the next year and well beyond.

More than 60% of RIAs are still led by their founders, and with the average age of advisors at over 50 years old, this creates opportunity for M&A around succession planning. We see this as a key factor that will continue to drive the consolidation trend into the future.

The number of RIAs created still far exceeds that of those purchased.

At the same time, the number of independent RIAs continues to increase. In fact, the number of RIAs created still far exceeds that of those purchased. According to Cerulli, the opportunity for RIA acquisitions is $3.7 trillion.

In addition to RIA consolidation, firms across the industry, including Hightower, have been acquiring firms that can bring new services to meet the demands of clients. We see this trend continuing in tandem as the industry continues to evolve.

WSR: How do you see valuations for M&A evolving in 2024? What are the primary drivers for that?

Holsopple: Valuations should remain strong into the new year and beyond. While capital continues pouring into the industry, we are not seeing a material uptick in the number of deals in the wealth space. As we previously noted, the number of deals in 2023 may not have hit the record levels of the past few years, but we still saw a very active deal front with no slowdown in sight.

Given this, we expect multiples and valuations to remain strong into 2024, both for independent advisory practices and the aggregators that are buying them.

WSR: What are the trends around buyer and seller selectivity and due diligence, and what are the practical implications of those trends on deal flow?

Holsopple: The current environment – with strong valuations, market volatility and a steady deal flow – has created a perfect storm, pushing acquirers to be somewhat more selective. Both buyers and sellers are taking their time to find strong alignment when it comes to business vision and culture.

We are seeing more equity – and less cash – changing hands across the board.

We are seeing more equity – and less cash – changing hands across the board. We also expect to continue to see more structure behind deals, meaning the business has to perform or grow after it’s acquired in order to achieve the total value of the deal.

Also, ongoing market volatility should continue to drive firms to do more diligence than has been the case over the past few years. Sellers and buyers will likely continue to be somewhat more particular about their choices on partners. This can all lead to longer deal cycles.

James Miller, Contributing Editor and Research Analyst at Wealth Solutions Report, can be reached at ContributingEd@wealthsolutionsreport.com.

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