Rising RIA deal size reflects bigger advisory firms, not only private equity capital

The M&A report WealthManagement.com published Monday opens with a caveat worth taking seriously — acquisition tallies vary by methodology, so comparisons across them produce arguments as often as information — but the claim its author believes survives that caveat is that deal size is moving up, a trend visible in Fidelity's latest report and in the deals the columnist reports seeing at Carson. The usual demand-side explanations — private equity, borrowing costs, advisor demographics — are granted, and then the column adds a supply-side reason that gets less airtime: the average advisory business is larger, more sophisticated and more valuable than it was a decade ago, run now by professional management teams, specialized staff and succession plans where firms once measured themselves by how many million-dollar producers they employed.

Larger businesses sell for more money, and the argument is that the capital chasing acquisitions explains less of the trend than the industry's own maturation does. Deal size is an average, and an average moves when the mix of sellers changes even if no buyer pays more for any single firm; a shift toward larger sellers can produce a rising average that looks exactly like a market bidding up. Alongside it sits this publication's argument that the M&A premium has moved from assets under management to operating capacity and seller readiness, with private equity behind 89% of transactions. If the buy side of the table has been constant, the variable that moved most recently is the sell side.

The second half of the column is the part worth arguing with, because succession, scale and technology still drive transactions, it says, but the owners arriving at the table now are often not preparing to retire; they are competing against larger, better-equipped firms and asking whether the right partner could help them win more clients and grow faster. The column describes nimble, ambitious businesses with many productive years ahead, run by people whose question is not whether to exit but how far the firm could go with a bigger one behind it.

That changes what a buyer is underwriting and what a seller has to prove. Operating capacity — professional management, multiple service lines, a succession plan that holds — is what the column lists as the new characteristic of the average seller, and it is what acquirers have been paying for since integration replaced the intent-to-close gap as the binding constraint on deals; the newer element is motive. Readiness used to describe a book of clients that could be transferred to a new owner; increasingly it describes a business that means to keep running.

The practical advice is where the column sharpens. Owners should define the outcome they want before anything else, it says, and those with years left in the business hold an advantage the retiring founder does not: time to prepare deliberately instead of reacting to a deadline. Then comes the estimate — an owner may never be more valuable than seven years before a planned exit — with the acknowledgment that exact timelines vary and the assertion that preparation takes longer than most owners expect. The implication for anyone weighing a term sheet is uncomfortable. If value is built long before it is priced, an owner who starts preparing when the first buyer calls has handed the schedule to the other side of the table.

There is a live example in our own coverage: the Bahnsen transaction we reported last week took a business from $600 million to $10.5 billion without acquisitions, with Hightower buying the machine that made the growth. The column's own related reading points to Bahnsen on building a business "worth selling" — the mature-seller case stated plainly.

One caution about the headline number: the column reports the direction of deal size without a magnitude — no average purchase price, no multiple and no deal count appear in it — and the underlying figure sits in the Fidelity report it cites. That matters when the number circulates on its own: a market where average size rises while transaction volume holds flat is a different market from one in which every seller is getting more for the same firm, and a single average cannot tell the two apart.

The figure worth watching in the next round of deal data is the one nobody quotes: if average size rises again while the count of transactions does not, composition is doing the work; if both climb together, demand is. The column argues for the first, and its seven-year marker explains why the argument matters to buyers as much as to sellers: the businesses reaching the table in this cycle were built well before they got there.