One of the country’s largest strategic acquirers is back in the RIA M&A market.
Captrust Financial Advisors, which has bought 29 firms in the past 12 years, made its first purchase of 2018, closing a deal to acquire Catawba Capital Management , a Roanoke, Virginia-based advisory firm with around $1 billion in assets under management.
Catawba received cash and equity, but the purchase price was not disclosed.
In a year marked by record volume and rising valuations, Captrust has attempted to remain disciplined on price, says Fielding Miller, the firm’s CEO.
"We need to make sure we get an acceptable return for the risk we take, and if a year goes without a deal, so be it," Miller says.
Captrust bought seven firms last year but none in 2016. In February, the firm announced it had bought Knox Capital Group in Salt Lake City, but the deal closed late last year.
The Raleigh, North Carolina-based company, whose RIAs have approximately $6 billion in AUM, hopes to complete three more deals this year and average four to five transactions in the years ahead, according to Fielding.
Despite concerns about an overheated market, Fielding believes heightened interest in M&A for RIAs "is just getting started. The market may seem frothy but I think it’s more of a new normal. Owners over 60 will continue to sell and every year more and more people have to pick a dance partner."
Rising prices for advisory firms, fueled in part by private equity capital, will eventually stabilize, Fielding believes.
"Private equity may have to pay up to get in the game, but once they’re in and have to get a certain return, prices will be rationalized," he says.
Bid offers for Catawba, based on a multiple of adjusted EBITDA, were mostly in the same price range, says Terence Crowgey, a partner and co-founder of the firm.
Once a fair price is established, owners switch their focus to more subjective issues when selecting a partner, Crowgey says.
"The market may seem frothy but I think it's more of a new normal," says Captrust CEO Fielding Miller.
Catawba was motivated to sell because it wanted a succession plan and its resources were constrained, he explained. The firm emphasizes a high-touch approach to high-net-worth clients and wanted a buyer who meshed with the firm on cultural issues such as client service, investment philosophy and personnel matters.
Crowgey and his partner Jay Irons, who will continue working with Captrust, also wanted a "sense of permanency" from a partner, he says.
The stock of one potential buyer was owned by two people, one of whom "was getting on in years," Crowgey recalls. "I thought there was good a chance the stock would be sold, and I wanted my clients to only have to go through one sale."
Different selling objectives is another reason Fielding says he wasn’t overly concerned about an overheated market.
"Sellers have three constituencies: clients, employees and shareholders," he notes. "The highest price doesn’t necessarily solve for all those problems. A lot of things have to line up to get the right deal."