Dan Seivert is the CEO and founder of ECHELON Partners, the leading investment bank to the wealth and investment management industries. Over the past 20 years, Seivert has worked with over 500 executive teams and boards to help them envision, initiate and execute a diversity of complex business strategies and transactions.
Prince: Please describe ECHELON Partners.
Seivert: We are a boutique investment bank focused on M&A for the wealth and investment management industries. We offer a total platform approach with a driven focus on investment banking, which our industry’s most elite firms rely on to bring their vision to life, power their performance and drive exceptional business and M&A results.
Prince: What key trends are you seeing when it comes to financial advisors selling their practices?
Seivert: In the most recent quarter, we witnessed another record setting quarter for M&A in the wealth management industry as activity once again reached unprecedented levels as strong secular trends and supportive capital markets continue to fuel record-setting dealmaking activity.
Specifically we are finding the public markets provide liquidity for large platforms signaling the institutionalization of the wealth management industry. M&A activity is accreting as these large platforms who are the most active dealmakers in the wealth management industry continue their acquisition enterprise. Also, the interest private equity has in the wealth management sector reached all-time highs as there were 12 direct investment transactions and 46 deals involving private equity sponsored portfolio companies in 3Q of this year. Additionally, there are strategic acquirers and consolidators, who are outpacing expectations, with robust acquisition activity that continues in 3Q of this year. These firms are are dominating the total M&A activity, accounting for over 70% of all transactions this quarter and over 50% of all transactions in 2021 year to date.
Prince: Aside from increasing their assets under management, what steps can financial advisors take to maximize the value of their practices prior to sale?
Seivert: Driving value in a transaction happens with (1) thoughtful sale planning and organization, (2) defined transaction goals, (3) effective marketing, (4) strict communication strategy, (5) competitive dynamics, (6) deep understanding of the buyer pool and (7) avoidance of post-closing stumbles. M&A advisors can assist with all of these, but some will require the efforts of management, specifically step 1, which can be best prepared for by “thinking like a buyer.”
Buyers of wealth managers often search for opportunities to create value through a lens that focuses on alignment in strategy and culture as well as attractive financial characteristics. Some key questions concerning strategy owners should ask themselves as part of the sale planning process include:
• What services do you provide to clients that could align well with other firms and what services do you provide that could add expertise and/or diversification to another firm?
• What has driven growth historically?
• What is going to drive growth moving forward?
• What are the key performance indicators for your firm and are these of most relevance to buyers?
• What unique service offering does your firm employ and will buyers find value in it?
The value derived from and assigned to a target firm’s operational strategy is evaluated based on the purported ability of the firm to generate future growth. This is the primary criteria acquirers judge the effectiveness of a firm’s strategy. One of the ways we work with our sell-side clients to best position themselves on the open market is to align their strategy in a way that enhances their future growth profile. By doing this, we can promote a more attractive story of expected financial performance.
At there same time, some key questions concerning culture owners should ask themselves as part of the sale planning process include:
• What does culture mean to your firm?
• What are your firm’s values?
• How do the values flow from management to employees to clients?
• How does your firm maintain culture?
What type of culture is important for you from a buyer type perspective?
When it comes to culture, buyers seek firms with a high quality of people supporting the firm’s operations. A tangible “care of clients” is something that many high-profile buyers seek in their partner firms. This is further defined as “the more a firm is attached to their clients, and vice versa, the higher implied value they offer a strategic partner.”
ECHELON puts particular emphasis on enhancing the advisor-client relationship. Another important dynamic to healthy firm culture is the alignment of goals and objectives amongst employees, advisors and management. One way we assist companies in achieving this mutuality is by capitalizing on the growing need to develop strategic and competitive compensation, performance management and equity sharing plans that appropriately reward partners and employees for firm growth and individual performance. Incentivizing employees in the firm’s overall success creates stakeholders who are motivated to act in the best interest of the firm and also its clients.
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