How RIAs Can Get the Best Price for Their Advisory Firms

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Merger and acquisition (M&A) activity in the investment advisory space has been very active in recent years, and this, along with the increasing age of many firm founders, has prompted more than a few owners to explore the potential sale or merger of their firms. Invariably, one of the first questions that comes to mind is, “What price can I get when selling my practice?”

Unfortunately, there is no single, definitive answer to this question, as the ultimate sale price depends on a variety of factors and often varies depending on who desires to purchase the firm. Nonetheless, sellers can position themselves to negotiate for purchase price terms that best suit their goals — provided that they possess information necessary to effectively negotiate such terms.

This article aims to arm investment advisors with some of the most important information they need to effectively negotiate the best purchase price terms for the sale of their businesses. Among other things, this article describes some of the most important factors that influence the valuation of an advisory firm, some of the most widely used valuation metrics, and other deal terms that can influence the ultimate purchase price realized by sellers.

Key Factors Used in Valuing Advisory Firms

Multiple factors — both internal and external — influence the valuation of investment advisor firms. These factors can significantly impact the purchase price in M&A transactions. They include: