By Michael D. Bilotta, President, Gladstone Group
Every founder wants to know the multiple. That is the first question, and I get it. The market is loud (as always) with new headlines every week, buyers calling, and valuations that would have seemed impossible ten years ago. You want to know where you stand.
Here is the problem with starting there: the multiple is the output. What drives it is everything that happens before the conversation about price ever starts. After 20 years and dozens of transactions at Gladstone, I can tell you that most founders, when they finally get into a real process, are surprised by how much of that work they have not done. The market is not slowing down while you figure it out.
Buyers Have Changed What They’re Looking For
A decade ago, the acquisitive groups were racing to scale with a primary focus on adding AUM, adding EBITDA, packing on assets as fast as they could move. The game was scale, scale, and more scale. With it, their platform’s size would drive collective valuation and attract better capital.
Those firms have arrived, and the race for raw scale is shifting. Wealth Enhancement Group did 17 acquisitions last year. That was an average year for them. When you are running at that pace and managing hundreds of billions in assets, you are not looking to add a $400 million firm primarily because of its revenue. You are evaluating whether the people who run it are worth investing in for the next 10 years. For a firm like that $400M shop, suddenly you need a more compelling value proposition.
Factors Buyers Are Prioritizing
When Gladstone takes a firm to market, conversations with buyers consistently return to the same six areas. Each of these is a factor that drives premiums and discounts in the final number.
Revenue quality. Advisory-dominant, recurring revenue tied to custodial reports commands a wider buyer pool and better terms. If you have brokerage trails or 1099 advisors whose revenue participation in a transaction is unclear, that complexity costs you. The earlier you understand your revenue composition, the more time you have to clean it up.
Client demographics. Buyers want to see advisors with a healthy proportion of clients who are still accumulating assets. If the average age of your client base is pushing 70, that is a meaningful discount factor. What partially offsets it is demonstrated engagement with the next generation, children and grandchildren of existing clients who know your firm and have a relationship with your team. A strong lead generation system for new accumulators is a decided plus factor.
Growth trajectory. Speaking of lead generation, this is one of the top emerging factors in what makes an RIA attractive to a buyer. Net new assets, not market appreciation. Organic growth from new households and additional wallet share from existing clients is a premium variable that separates a top valuation from a middle-of-the-market one. The difference in multiples between a firm growing at 10% net new and one growing at 0% often looks like the difference between an 8X and a 12X multiple, according to our own transaction data.
Operational excellence. I think most owners know by now that buyers want portable businesses. That means documented processes, a systematic approach to client acquisition, technology that transfers cleanly, and compliance infrastructure that does not fall apart when the founder steps back. If everything lives in your head, that is a risk premium buyers will price in.
Team stability. Depth beyond the founder is not a nice-to-have. Buyers know that the value of your firm lies in client-advisor relationships, and if those relationships reside exclusively with you, the acquisition risk is significant. Lifestyle practices are feeling this. Buyers like to know that key client-facing roles have redundancy and familiarity.
Owner dependency. This is the one that the founders underestimate most consistently. If the answer to “what happens if you step back in year two” is “referral growth dries up,” that will show up in your deal’s structure. Earn-outs, holdbacks, and extended transition requirements are how buyers price founder risk. Reducing that dependency before you go to market is one of the highest-return investments you can make in the three years leading up to a transaction.
Start Research Early, Procrastination is Expensive
As a potential seller, it’s perfectly fine not to be in a hurry. ”Researchers” who saw that “early” = “more options” and reached out to us 2-3 years before their transaction occurred had great outcomes. In that time, they learned about the types of buyers available and how to build for better valuations; they used that time to tailor the business for transferability.
I tell founders all the time: there is nothing wrong with having a conversation. It commits you to nothing. What it gives you is a real read on how the market sees your firm, where you have gaps, and what a strong outcome would actually require.
The founders who wait until they are ready to move may compress their own optionality. The ones who start exploring when the firm is on an upswing (net new assets growing, team intact, culture strong) have time to address the things that matter before they become negotiating liabilities.
*** Michael D. Bilotta is the President of Gladstone Associates, Gladstone Group’s M&A advisory practice. He has advised on RIA and wealth management transactions for nearly 20 years. Reach him at mbilotta@gstonellc.com.