A Tale of Two Firms Diverging Paths to Successful Acquisition
Introduction
In the RIA industry, there are many strategies for growth and no two firms will have the same path to success. In this case study, we will highlight two very different firms who both used acquisition financing to advance their growth strategies
Firm A: The Succession Solution
History
Firm A’s journey began in 2016 via a merger of two books of business totaling $200MM AUM. In subsequent years, they acquired several smaller firms which increased their AUM to $800MM. In 2023, they partnered with Oak Street Funding to finance their largest acquisition to date with a $23MM loan. This acquisition propelled their AUM to $1.5B. They continue to acquire additional firms and are actively adding new partners with partner buy-in loans from Oak Street Funding.
Strategy
Firm A found its niche in acquiring firms without a succession plan. Essentially, they became the succession plan for owners looking to exit their business. By offering a seamless exit strategy and attractive incentive programs for key employees, they are able to retain talent and client relationships. This firm spends ample time preparing, researching, and communicating to ensure high alignment post-acquisition. Their rigorous process to ensure cultural alignment minimizes risk and maximizes the potential of each acquisition.
Firm B: The Talent Hunters
History
Firm B began in 2000 when two competing advisors met while pursuing the same firm for acquisition. Instead of acquiring that firm, they decided to join forces and create a new firm. Within 20 years, the firm was managing an impressive $4.5B in AUM due
Firm A
STRATEGY
Acquire firms without a clear exit strategy
Capitalize acquisition strategy with debt financing
STRATEGY
Acquire firms to onboard younger advisors
Firm B
to their acquisition strategy and strong organic growth. In 2021, the owners reached out to Oak Street Funding for acquisition financing of $4.25MM to support various strategic initiatives, including earn-outs, acquisitions, and partner buy-ins. Firm B continues to experience exponential growth, and their AUM has doubled in three years.
Strategy
Unlike Firm A, Firm B prioritizes talent acquisition over targeting retiring advisors’ businesses and ultimately providing them a succession plan. The term acquihire was coined to describe this particular strategy of acquiring solely for the purpose of onboarding new advisors. Firm B’s exponential growth means they have ample opportunity for younger advisors to join their firm and grow their portfolios, resulting in massive organic growth. By prioritizing their people, Firm B demonstrates that a people-first approach can drive exceptional growth.
The Keys to Success
Both firms experienced such success with their acquisition strategies because they followed these four best practices.
1. Identify Target
While Firms A and B had different acquisition targets in mind, they each established very specific clear guidelines for the type of firms they were seeking. They made sure each acquisition fit within the firm’s overall strategy and goals. Resources such as a buyer/seller exchange and industry conferences are great places to find an acquisition target.
2. Assemble Team
Both of these firms assembled a strong team of stakeholders, consultants, attorneys and lenders early on in the process. These key team members each provide a different perspective on an acquisition that can help prevent potential issues. Especially in acquisitions that employ debt financing, it is key to start conversations with a lender as early as possible in the process.
3. Due Diligence
On the surface, an acquisition target may seem ideal, but there may be issues that do not come to light until further research. The due diligence stage is one of the most important steps in a successful acquisition; therefore, it is important to allow plenty of time for a thorough evaluation.
4. Post-Acquisition Integration
Even the most well-planned acquisitions can fall apart after the ink has dried if there isn’t a clear postacquisition integration plan. Whether it is employee incentives like Firm A or a supportive onboarding process like Firm B, the most successful acquisitions include specific post-close actions and follow-through.
The Takeaway
These two case studies illustrate that there’s no onesize-fits-all approach to growth. While these firms have different approaches, their stories demonstrate the power of strategic acquisitions, backed by smart financing, to chart their unique paths to remarkable growth.
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