A change is underway in wealth management M&A. Its growing momentum will be felt by many, but all must understand its implications. We are calling it The Great Private Equity Swap.
Since 2020, private equity has flooded into the RIA space. As if at once, many PE shops that had never before invested in wealth management collectively saw the potential for huge returns. The math made sense. An RIA growing steadily at 9% or 10% organically could hit 15% to 50% annually with the right capital backer and a well-formulated acquisition strategy. And while doubling a $100 billion AUM firm is tough, turning $10 billion into $30 billion is more easily achievable.
So the money came, and most of the firms backed by that capital delivered. Share prices climbed. Returns exceeded expectations. Growth accelerated. I’ve sat in rooms where buyers point to 3x, 5x, even 10x equity growth as they pitch sellers on rolling a portion of their proceeds into the buyer’s equity. And the private equity firms behind it all? They’re thrilled. The returns have been outstanding.
And now comes the next chapter.
The initial wave of investments made in 2020 and 2021 is approaching maturity, which means exits are coming. And when they do, most of those PE firms won’t abandon wealth management in favor of a different market. The ROI is too lucrative. They are looking for their next partner, their next $15 billion RIA, their next 3x return in as many years.
Almost like a high-stakes game of musical chairs—one private equity firm exits, another steps in, everyone shifts seats and the music keeps playing.
For founders, this raises many questions. If you sold 100% of your company to a capital-backed buyer in the last few years, your firm may soon be under new ownership. While this almost certainly means a windfall, it could also mean uncertainty.
Which is why it is imperative for the wealth management founder contemplating a sale to do their homework ahead of signing a purchase agreement. Why did your potential partner choose their current private equity backer? Do they plan to stay with them or make a change? Do you trust that leadership will make a good decision the second time?
Most importantly, do they even have any control over who the next backer will be? Technically, the answer here may be no. If a PE firm owns a controlling stake, it controls the firm’s fate. But in practice, rarely are things so rigid. Hostile takeovers don’t work in this industry. A new backer is unlikely to pay an astronomical multiple to engage with a firm where management is unsupportive and uncooperative. This industry has no assets—only trust, relationships and alignment.
Meanwhile, the landscape of capital backers is shifting. Private equity firms are differentiating themselves—having capital is no longer enough. Many are offering less restrictive terms, and minority deals are on the rise.
We then face the question of whether or not we have reached a ceiling on deal multiples—it’s hard to imagine multiples growing far beyond 25x EBITDA. If we are, in fact, at or approaching a ceiling, then revenue growth becomes an incredibly important lever to continue achieving returns.
We are already seeing firms diversify their services to grow revenue faster than expenses: tax planning, insurance, estate and trust, business consulting and health and wellness. If the multiple cannot grow further, the best way to generate meaningful returns is to expand what you offer and who you serve.
Wealth management is still in the early innings of private equity involvement. Billion-dollar checks are standard in other industries and are coming here, too. The market is not too expensive. It is evolving.
The next 12 to 18 months will test how prepared this industry is for what is to come. The Great Private Equity Swap is not hypothetical. It is happening, and it will change the way wealth management firms think about capital, partnerships, and growth.
It is not just a matter of who gets a seat. It is about knowing which table you want to be at when the music stops.
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