PORTLAND, Ore.--(BUSINESS WIRE)--Succession Resource Group, Inc. (SRG) released its mid-year update on advisor mergers and acquisition activity for Q1/Q2 of 2024, highlighting significant trends for those engaged in buying, selling, and succession planning.
The findings, which cover the first half of the year, reflects the impact of both a looming election and the high-interest rate environment on the M&A market, with a notable decrease in all-cash deals and a short-term shift away from third-party financing. Despite these challenges, multiples have remained robust, trending upwards, with the average recurring revenue multiple reaching 3.12x. Interestingly, overall deal flow has stayed consistent rather than skyrocketing, as many advisors opt to retire in place, gradually reducing their hours (leading to client attrition) rather than through an intentional sale of their business - whether done gradually or all at once. This update underscores the complex dynamics currently shaping the advisor acquisition landscape.
M&A highlights include:
- The average revenue multiple continues to climb from 3.02x in February 2024 to 3.12x by July 2024, representing an 11.4% increase since 2022.
- Earnings multiples (currently at 9.0x EBITDA) are becoming more prevalent across the industry, which is representative of the current industry trend toward consolidation with firms growing their teams to achieve scale, merging, and engaging in M&A transactions multiple times over the course of their careers.
- Deals are achieving at a minimum, a 2.0x recurring revenue multiple, with those on the high end achieving greater than 4.0x recurring revenue.
- All-cash deals dropped to 31% of deal volume and seller-financed deals now represent 46.7% of all deals, highlighting the impact of an enduring high-interest rate environment.
Market Trends:
- Over half of all deals (55.2%) are leveraging a retention clause. While buyers prefer a retention clause to mitigate the risk of client attrition post-sale, in a seller’s market their usage was on the decline. As buyer cash flow from an acquisition has become more constrained by the interest rate environment, it appears buyers are more concerned about client retention than ever before.
- Leveraging technology and evolving client service models have sparked growth in out-of-state buyers, which are now accounting for 55.2% of 2024 buyers.
- Internal succession transactions are on the rise, up 64% from 2023, along with the growth of open-market transactions, which can be explained by current market conditions. As owners seek to capitalize on growing revenue multiples, they can also locate the best buyer across the industry through a competitive bidding scenario. Pursuing an open-market approach to selling the business is driving greater interest, more compelling offers, more cash up front, better tax treatment, and ultimately better deals for retiring advisors.
The SRG mid-year update for 2024 paints a nuanced picture of the advisor acquisition landscape. Despite a challenging rate environment, recurring revenue multiples and EBITDA multiples continue to rise, reflecting a resilient market with sustained demand. The decline in all-cash deals and the increase in seller-financed transactions underscore the shifting dynamics influenced by economic conditions.
Market trends, including the growing prevalence of retention clauses and the rise in out-of-state buyers, highlight the evolving nature of M&A transactions. As internal succession plans and open-market transactions gain momentum, advisors are increasingly positioned to navigate these changes and capitalize on favorable market conditions, ensuring the best outcomes for their succession strategies.
About Succession Resource Group:
Succession Resource Group (SRG) is an award-winning consulting firm dedicated to supporting independent financial professionals across the country. We leverage decades of experience to provide a comprehensive suite of services, including valuation, M&A, succession planning, and practice management solutions. Our mission is to empower financial professionals at every stage of their business journey, helping them navigate complexities, maximize value, and achieve their long-term goals. For more information, visit SuccessionResource.com.
