Episode summary
Navigating Market Volatility and Strategic Growth Through M&A
Summary
Market volatility, Michael Wunderli argues, will expose which advisory firms were built on genuine organic growth and which were inflated by a long bull market. He says extended down markets tend to reward firms with strong balance sheets and punish those with too much leverage, because the well-capitalized can keep buying and gain share while others are constrained by lenders or private equity covenants.
Wunderli says premium M&A valuations go to firms that can grow organically and have strong next-generation advisors in place. Buyers are looking past current revenue to whether the business can last in perpetuity, so a repeatable business-development process, a deep network of centers of influence, and the ability to close new prospects all matter. Firms without that growth profile, or without a succession plan, are seeing discounts.
He also stresses that the most important decision in a sale is choosing the right partner, not rushing to close. Because the seller usually only gets one chance to sell, he says the process should include enough time and questions to understand integration approach, partnership model, culture, and client support before committing.
Key takeaways
- Michael Wunderli says a down market will separate firms with true organic growth from those whose results were inflated by the bull market.
- He argues that firms with strong balance sheets can buy quality practices at lower valuations and gain market share when competitors are stressed.
- Premium valuations go to sellers with organic growth, strong next-generation advisors, and a repeatable business-development process.
- Wunderli says firms without growth or a successor solution are already getting discounts in the marketplace.
- He says the most important factor in any transaction is choosing the right partner, not just maximizing price.
Notable quotes
“what drives premium valuations are teams that have the ability to grow organically and those that have great next generation advisors in place”
“the firms that are best poised to take advantage of of bad times as opposed to good times end up much better off in the in the end”
“the most important thing in a transaction is the partner you select”
“You know, you only get the opportunity to sell your business one time”
“The firms that aren't growing as well or don't have a successor solution definitely are being given a a discount in the marketplace”
How the episode opens
We've been in such an extended bull market that it's been just such a boon to the entire industry. But it also gives people a false sense of security because they see this year-over-year growth when a lot of that is boosted by the markets and not actual organic growth which is the true value driver in this industry. So I think that eventually we will have an extended down market which will have an significant impact on a lot of firms both the sellers and the buyers and that's when you'll start to see who's been doing it right and who's been doing it wrong.
I think a lot of people have approached it from let's just build up our business as quickly as we can versus let's really bring in the best truly growthdriven teams that are able to grow their business and then integrate them into the infrastructure so they can truly benefits from firms that have the scale that can allow them to go and and grow that way. During a down period, a lot of it like in the industry, a lot of firms will benefit and other firms will get hurt. You know, if you have a lot of leverage on your balance sheet, for instance, an extended down period can can trigger certain requirements and regulations that the banks have imposed on you or your private equity partners.
So it's important to have a strong balance sheet going into these because what it can do is one it can freeze up your capital so you can't make acquisitions whereas on the other hand the firms that are really well capitalized they are able to take advantage of a down market maybe acquire some really high quality practices at slightly lower valuations and and and gain market share.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- market volatility
- m&a strategy
- organic growth
- valuation premiums
- deal execution
Companies and tickers mentioned
- CAPTRUST Financial Advisors
Watch the episode
Watch “Navigating Market Volatility and Strategic Growth Through M&A” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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