19 min
Episode 220: The Art of Balancing Market Conditions and Client Motivations in Deals with Corey Kupfer DealQuest Podcast with Corey Kupfer
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- Business News
In the wealth management industry, deals have been reaching record-breaking levels in recent years; however, a recent DeVoe report showed a significant drop in deals in October 2022, which raised concerns among industry professionals. Despite this report, I personally did not observe any impact on deals at the time. Valuations were still holding strong, and deal structures were simply adjusting by requiring less upfront investment and more in the back end. This allowed sellers to still receive full value for their assets. Despite this dip in the deal market, the overall deal flow was still strong, and valuations remained high.
It is important to note that the state of the deal market can be influenced by a variety of factors:
Inflation
Higher interest rates
A less stable stock market
World events
All of the above, and more, can potentially have an impact on deal flow, interest, and availability. While there may be assumptions that high deal volumes and interest rates are directly related, this is not necessarily the case. In fact, high deal volumes have occurred during times when interest rates were in double digits. It is important to understand that the impact of these factors can vary greatly depending on the industry and sector. As such, it is crucial for wealth management professionals to stay informed about these trends and be proactive in adjusting their strategies accordingly.
As a lawyer, I am a documenter of deals, but I am also a trusted advisor to my clients. It's important to understand both the market conditions and the motivations behind each deal, and to find a balance that works for everyone involved.
THE IMPORTANCE OF UNDERSTANDING LONG-TERM TRENDS IN DEAL FLOW
Despite still seeing pretty stable deal flow and valuations, I do recognize that there can be impact on deal flow and the investment landscape when interest rates rise to the degree in which they currently have. In fact, the recent hike of 3/4th of a point was beyond what was expected, and may very well have an impact on the market. Personally, however, this potential correlation has been slow to materialize. I’ve only had one client pull out of a deal.
That’s not to discredit DeVoe’s data – it’s solid data – however, my undertaking of the recent RIA M&A series has given me a look into how exactly that data is expressing itself in the real world. My interviews, especially with buy-side RIA aggregators and integrators has shown me that there’s still a significant deal flow and interest happening.
It is possible that there may just be some lag time before the effect of the rate hikes really begin to reveal themselves, and it may very well be too soon to tell if this is just a temporary dip, or something more long-lasting.
A FLUCTUATING MARKET AFFECT SPACES DIFFERENTLY
An important thing to take into consideration when evaluating any relationship between the market and deal flows is that each sector is different. The market can impact different sectors in any number of ways. For example, the COVID-19 pandemic’s effects on the market showed some interesting results.
The housing market is subject to fluctuations, and high housing values can lead to a period of adjustment for both buyers and sellers. During times of economic change, uncertainty can cause individuals to slow the process of buying or selling a house. The gap between a seller's expectations of their home's value and a buyer's willingness to pay can lead to deals not getting done. This can happen in the M&A space as well, where multiples are coming down and buyers are cautious about paying high prices.
Sellers may be holding out for prices to go back up, but the motivations for selling a home often go beyond just high valuations. Retirement, merging for better growth, or hitting a limit on growth are all reasons why a seller may still want to sell even if valuations are lower.
Market conditions are always a major fa
In the wealth management industry, deals have been reaching record-breaking levels in recent years; however, a recent DeVoe report showed a significant drop in deals in October 2022, which raised concerns among industry professionals. Despite this report, I personally did not observe any impact on deals at the time. Valuations were still holding strong, and deal structures were simply adjusting by requiring less upfront investment and more in the back end. This allowed sellers to still receive full value for their assets. Despite this dip in the deal market, the overall deal flow was still strong, and valuations remained high.
It is important to note that the state of the deal market can be influenced by a variety of factors:
Inflation
Higher interest rates
A less stable stock market
World events
All of the above, and more, can potentially have an impact on deal flow, interest, and availability. While there may be assumptions that high deal volumes and interest rates are directly related, this is not necessarily the case. In fact, high deal volumes have occurred during times when interest rates were in double digits. It is important to understand that the impact of these factors can vary greatly depending on the industry and sector. As such, it is crucial for wealth management professionals to stay informed about these trends and be proactive in adjusting their strategies accordingly.
As a lawyer, I am a documenter of deals, but I am also a trusted advisor to my clients. It's important to understand both the market conditions and the motivations behind each deal, and to find a balance that works for everyone involved.
THE IMPORTANCE OF UNDERSTANDING LONG-TERM TRENDS IN DEAL FLOW
Despite still seeing pretty stable deal flow and valuations, I do recognize that there can be impact on deal flow and the investment landscape when interest rates rise to the degree in which they currently have. In fact, the recent hike of 3/4th of a point was beyond what was expected, and may very well have an impact on the market. Personally, however, this potential correlation has been slow to materialize. I’ve only had one client pull out of a deal.
That’s not to discredit DeVoe’s data – it’s solid data – however, my undertaking of the recent RIA M&A series has given me a look into how exactly that data is expressing itself in the real world. My interviews, especially with buy-side RIA aggregators and integrators has shown me that there’s still a significant deal flow and interest happening.
It is possible that there may just be some lag time before the effect of the rate hikes really begin to reveal themselves, and it may very well be too soon to tell if this is just a temporary dip, or something more long-lasting.
A FLUCTUATING MARKET AFFECT SPACES DIFFERENTLY
An important thing to take into consideration when evaluating any relationship between the market and deal flows is that each sector is different. The market can impact different sectors in any number of ways. For example, the COVID-19 pandemic’s effects on the market showed some interesting results.
The housing market is subject to fluctuations, and high housing values can lead to a period of adjustment for both buyers and sellers. During times of economic change, uncertainty can cause individuals to slow the process of buying or selling a house. The gap between a seller's expectations of their home's value and a buyer's willingness to pay can lead to deals not getting done. This can happen in the M&A space as well, where multiples are coming down and buyers are cautious about paying high prices.
Sellers may be holding out for prices to go back up, but the motivations for selling a home often go beyond just high valuations. Retirement, merging for better growth, or hitting a limit on growth are all reasons why a seller may still want to sell even if valuations are lower.
Market conditions are always a major fa
19 min