Announcement


Study: Financial advisors express high interest in M&A

Dimensional Fund Advisors releases data from the M&A section of its 2020 Global Advisor Study, one of the largest global advisor business analyses.

May 18, 2021—Dimensional’s 2020 Global Advisor Study indicated financial advisors and RIAs have strong interests in pursuing mergers and acquisitions (M&A), yet need to focus efforts on developing their strategies around M&A, succession, and post-transaction integration.

This year marks the 10th anniversary of the study, which aggregates 2020 data from nearly 1,000 independent advisory firms globally with $368 billion in combined assets under management (AUM). Participating firms range in size from <$50MM to >$1B in AUM.

Key insights from the study include:

  • • Nearly half of the surveyed firms indicated they would like to execute a merger or acquisition over the next 24 months, with most of those firms indicating interests in acquiring. However, the study also found that over 80% of firms lack a defined M&A strategy.


  • • Among the firms that are actively considering M&A, the top four responses indicated that 31% want to acquire a firm, 21% want to acquire a team, 9% want to merge, and 7% want to be acquired.


  • • 62% of respondents have been contacted by firms interested in M&A, but only 3% of this subset moved forward with a deal.


  • • 60% of the reported transactions occurred among firms with less than $50MM in AUM, which reflects the ongoing focus on partnering with larger, more mature firms to pursue continued growth and solve for succession.


  • • 44% of firms have a succession strategy in place—an improved percentage over prior annual studies—but indicative that many firms are still grappling with developing a comprehensive plan.


  • • Among all survey participants, client retention for completed transactions in the last three years was 93%, on average.




Dissecting M&A

The most common reasons participants cited for their interests in M&A activity include increasing the value of their businesses, improving economies of scale, improving cashflows/profits, and acquiring human capital.

The most common deal-breakers reported in a sale or acquisition were lack of investment philosophy alignment (83%) and firm culture fit (82%). However, when a deal is ready to finalize, the average timeframe from signing a letter of intent to executing the deal agreement is less than 3 months. This may reflect acquirers becoming more precise with their offerings and sellers having a clearer set of goals and deal-breakers.

Among the fastest-growing firms in the study, acquisition accounted for 20% of new client households and 30% of AUM growth.

Firms using a revenue multiple reported a median valuation ratio of 2 times revenue, while those who leverage EBITDA or cashflow reported a median multiple of 5.25 times.

“As we heard from industry experts and seasoned acquirers in attendance at Dimensional’s recent Deals & Succession Conference, buyers are looking for evidence of strong organic growth in the firms they are targeting for acquisition,” said Catherine Williams, Dimensional’s Head of Practice Management. “Likewise, sellers want to understand how the acquiring firm will enhance services to clients and further their growth objectives.”


Succession

The recent conference and study results also indicated advisors’ and RIAs’ ongoing focus on finding an internal succession solution. According to the study, the biggest challenges that firms face when implementing a succession plan are identifying a successor (49%) followed by agreeing on a time frame for implementation of the plan (28%). With talent acquisition among the top-five reasons for buying another advisory business, some firms are turning to an acquisition strategy to find potential next-generation talent who may provide a succession solution.

The study results highlighted the large number of advisors who are approaching retirement soon and need to consider their succession options. Of the firms that have a documented succession plan, 46% are looking to execute their plans within the next 10 years. When looking specifically at the succession timelines of sole practitioners (a subset of the larger advisor group), the study indicated that 43% plan to exit in five years or less.

“For 40 years, Dimensional has focused on supporting advisors in delivering an outstanding client experience,” said Dimensional Co-CEO Dave Butler. “The Global Advisor Study aims to serve as a resource for financial advisors by providing data and insights that help enhance the value they deliver to investors and support their growing businesses.”

More information on Dimensional’s 2020 Global Advisor Study is available upon request.

 

ABOUT DIMENSIONAL FUND ADVISORS

Dimensional is a leading global investment firm that has been translating academic research into practical investment solutions since 1981. Guided by a strong belief in markets, we help investors pursue higher expected returns through a systematic investment process that integrates research insights with advanced portfolio design, management, and trading, while balancing tradeoffs that can impact returns. Dimensional is headquartered in Austin, Texas, and has 13 global offices across North America, Europe, and Asia. As of March 31, 2021, Dimensional manages $637 billion for investors worldwide. For more information, please visit dimensional.com.

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