Purchase Price Allocation, Investment Management

November 20, 2024

WHITEPAPER | Purchase Price Allocations for RIAs

There’s been a great deal of interest in RIA acquisitions in recent years from a diverse group of buyers ranging from consolidators, other RIAs, banks, diversified financial services companies, and private equity.These acquirers have been drawn to RIA acquisitions due to the high margins, recurring revenue, low capital needs, and sticky client bases that RIAs often offer.Following these transactions, acquirers are generally required under accounting standards to perform what is known as a purchase price allocation, or PPA.In this whitepaper, we describe the PPA process, including attributes unique to the investment management industry.

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The Margin RIA Buyers Actually Underwrite
The Margin RIA Buyers Actually Underwrite

Why the Post-Closing Cost Structure Matters More Than the Historical Margin

RIA buyers often focus less on a seller’s historical margin than on the earnings the business can generate after closing under the buyer’s operating model. Differences in integration strategy, cost structure, and platform capabilities can lead buyers to underwrite materially different margins and values.
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AI investment can create value for RIAs by improving capacity, growth, efficiency, and risk management, but the benefits must ultimately translate into stronger cash flow or reduced risk. Recurring AI costs generally remain operating expenses, making measurable adoption and returns critical to valuation.
Making Money in Money Management
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What First Eagle and Wealth Enhancement Can Tell Us About Building Value

Asset managers and wealth managers can reach similar valuations through very different economic models, with relationships, product scalability, growth, and operating leverage shaping the path to value. First Eagle and Wealth Enhancement Group illustrate why sustainable AUM growth and durable cash flow matter more than scale alone.
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