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October 21, 2024 at 11:25 AM PDT
Focus On… Episode 2: The M&A Landscape
In our second episode of Focus On… we explored mergers and acquisitions (M&A) within the wealth management industry, a subject that has dominated headlines for the past decade. The scale and number of acquirers in our industry continue to rise, with the number of consolidators more than doubling over the last few years. At Focus, we pride ourselves on being the leading player in this space, having completed over 300 transactions since our founding.
For this episode, I was joined by Sonia Vergel, a Principal on Focus’ M&A team, and Amrita Nangiana, Senior Vice President and Associate General Counsel at Focus, both of whom brought a wealth of expertise to our discussion. Sonia joined Focus five years ago after a seven-year career in investment banking and consulting. She now focuses on M&A and corporate development, drawing on her deep understanding of the RIA industry. Amrita, an M&A attorney with over 15 years of experience, has been with Focus for seven years, handling complex legal matters as the firm transitioned through various stages of growth.
We discussed how the M&A landscape is shifting, with firms increasingly focused on growth and client satisfaction rather than just succession planning and liquidity. Our conversation also highlighted the people-driven nature of these transactions, stressing the importance of cultural fit and long-term relationships.
Explore the key discussion points in the summary below, or watch the full episode here:
What Makes for a Smooth M&A Transaction?
Through their extensive experience executing transactions at Focus, Sonia and Amrita identified key lessons that contribute to a smooth transaction process. Collaboration between legal and business teams is essential, as is the importance of engaging all stakeholders, particularly the next generation.
Amrita pointed out that legal teams shouldn’t aim to win every point but should work collaboratively with the business side to minimize legal and business risks. The smoothest transactions occur when both parties and their lawyers keep the overall business objective in mind. “It’s not about having it [be] black and white; them versus us,” she noted. “It’s about what’s the best way to minimize the legal and business risk and have everyone walk away feeling like they’ve won.” Successful deals require both parties’ counsel to balance client advocacy with a broader view of the overall business objective.
Sonia added that understanding the emotional aspects of a deal is critical: “These are people businesses, and with that comes a lot of emotions… It’s very important for us to work with people and really think about, yes, we have business objectives, but, at the end of the day, this is probably one of the most important decisions that a seller is going to make in their lifetime.”
Cultural alignment also remains a cornerstone of Focus’s M&A strategy. By focusing on integration and combining individual firms’ strengths, Focus fosters long-lasting relationships and enhances collaboration among firms, allowing for shared growth and success.
“Part of the beauty of how our deals are structured and how the partnership works is when a transaction closes, you end up becoming part of the Focus ecosystem,” said Amrita. “Every transaction enhances the value of the additive partnership. Once you close your deal, you’re not a seller who’s going to ride off into the sunset. You’re going to be a part of Focus for years to come.”
How Industry Trends Influence Seller Expectations in Transactions
Seller interests in transactions have evolved significantly. Historically, many sellers were founders seeking liquidity and resources from larger platforms as they approached retirement. While this remains important, founders are increasingly focused on developing and retaining the next generation of key team members.
“It’s not just [about] founders anymore,” said Sonia. “There is next gen in the firm. People are asking, ‘How do I make sure I can retain those people? How do I incentivize them? How do I give them the right instruments to be better at their jobs?’” At Focus, she noted, we’ve addressed these challenges through how we structure transactions. “There’s always going to be a liquidity event, but we want to make it a lot more than that. We want to make sure that the tools are there so that the next gen and key employees can really benefit and share in the upside going forward.”
Another major shift is the recognition that simply earning client trust is no longer sufficient for retention. Clients are demanding more services, and firms need to evolve to meet those expectations. Many firms are enhancing the client experience by delivering specialized services and user-friendly technology, all while maintaining trusted advisor relationships.
Finally, the drive to increase organic growth has become a top priority for sellers, who value programs and channels that facilitate client acquisition and expand wallet share. We’re seeing a focus on building referral networks, center-of-influence relationships, and coaching programs to facilitate sustainable growth. To support these efforts at scale for our partner firms, Focus has invested in marketing, business development, pipeline tracking, and state-of-the-art technology—key building blocks for driving organic growth.
The Impact of Private Equity in Wealth Management
Wealth management is becoming a core segment in private equity portfolios, driven by low barriers to entry, lower capital requirements, steady fee levels, high client-retention rates, and significant opportunity for consolidation. As investment from private equity firms becomes more prevalent, many firms feel compelled to enhance their operations and service offerings to remain competitive. “Investment by private equity has meant that a lot of firms have had to be better than they were before,” noted Sonia, emphasizing how competition spurs growth.
Despite this, some concerns about private equity persist. “I think a lot of people will say, ‘There are things about private equity that I don’t like,” said Sonia. However, she argued that these concerns have diminished as private equity becomes more established – if not the norm – in the sector.
“Over time, if we think about it as partnering with private equity, it could mean a long cycle and significant investment over the years,” she added. “Private equity has come to a lot of these platforms in the space and a lot of [our] competitors with a growth mindset, asking, ‘How can I make these firms better? How can consolidation within these platforms really help the industry, drive innovation, and [bring] these firms to the next level?’”
Ultimately, as private equity continues to integrate into the wealth management sector, firms must navigate both the opportunities and challenges it presents to foster sustainable growth and drive innovation that benefits clients and those who serve them.
Concluding Thoughts: Embracing Change in M&A
As we wrapped up the episode, Amrita and Sonia shared what excites them most about being part of the M&A team at Focus. For Amrita, it’s the constant challenge, growth, and chance to collaborate with colleagues she respects. Sonia shared similar sentiments, expressing her excitement about Focus shaping the future of the industry through transformative M&A transactions.
We hope you found this episode engaging, and we look forward to sharing more insights in the next episode. Thank you for joining us!