The drive to merge or acquire hasn’t slacked off among registered investment advisory firms, but the push to align with another organization should be governed by a firm’s strategic objectives if it’s to pay off.

That’s according to a new Pershing report. “Real Deals: Achieving Purposeful Growth with Purposeful Transactions” analyzes RIA deals and offers guidance to firms for determining if or when a transaction is the optimal course of action.

The report said that one out of every four advisory firms was involved in a transaction in the past five years. Of those transactions, almost half (48 percent) were RIA-RIA deals, which is a big change over the last 10 years. A decade ago, industry transactions were dominated by banks and other institutional buyers.

While the number of real deal transactions—those mergers involving an RIA or acquisition of an RIA that is retail-focused, and manages $50 million or more in assets or earns $500,000 or more in annual revenues—has dropped slightly in 2014 from 2013, from 48 to 42, the report says that the level of activity is more or less consistent over the past several years.

However, while a merger or acquisition can offer the promise of growth, not all firms approach M&A with their own strategic goals in mind, says the report. While a deal can provide all sorts of benefits—economies of scale, entrees into new markets, expertise in new areas and even a succession solution—it needs to be considered carefully to determine whether it is appropriate for the firm. Growth can not only be inorganic—acquired through a merger or acquisition—or organic, by growing the potential the firm already possesses.

The report suggests firms consider four steps along with any possible M&A: a definition of objectives—those of the firm, of the shareholders, and any others that are on the table—the identification of any problem the firm hopes to solve via acquisition or merger, a list of all the options the firm has to achieve its goal and an analysis and discussion of all available options to identify the best among them.

Instant Insights /

Strategic objectives should drive mergers, acquisitions

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