SPACS, the Advisory Business and M&A Trends

Special purpose acquisition companies (SPACs) are experiencing a renaissance after some big-name investors and firms recently embraced the vehicles that are used to take companies public. In the investment advisory market, at least one registered investment adviser (RIA) firm has used a SPAC to go public, and a new SPAC is now funded and looking for an acquisition in this space.

SPACs are listed shell companies set up to acquire firms that will be merged into that shell. Often called reverse merger vehicles, SPACs enable companies to go public without going through the traditional initial public offering (IPO) process. After a SPAC raises capital, its sponsors are required to complete an acquisition within two years. Once that deal is done, the SPAC turns control of the acquired firm back over to the original managers or founders. 

In September, Michael Tiedemann announced a plan to take his RIA, Tiedemann Advisors, public through a SPAC. He was quoted by Citywire RIA as saying, “Most RIAs … are built to a point where they either struggle with organic growth or look to monetize their assets. That is not what we’re doing here. The partners of this business are exchanging their equity, not selling it.”

To get a better understanding of the expanding SPAC marketplace, PLANADVISER magazine spoke with Adam Dooley, the chief executive officer of a new SPAC looking to make an acquisition in the investment advisory market. Dooley has nearly 30 years of experience in the financial services industry, with expertise in the wealth management sector. The sponsor of the SPAC is Everest Consolidator Sponsor LLC, which is controlled by Belay Associates LLC, of which Dooley is the manager.

The SPAC, called Everest Consolidator Acquisition Corp., raised $172.5 million  in its IPO in November. Topics covered in the following Q&A include what Dooley is looking for in an acquisition target, changes in the investment advisory industry and the value of investment advisory firms with an assets under management (AUM) fee structure.

PA: Why are you looking to buy a financial adviser?

Adam Dooley: If you look broadly at the wealth management industry over the last 10 years, you’ll see that the fastest-growing segment of the industry is financial advice. People want unbiased and transparent advice with fees based on their assets under management. Customer demands are changing. There are more younger investors and more women, and that’s changing how advice is delivered.

PA: What are you looking for in a company?

Dooley: First, we’re not solely looking for financial advisory firms providing fee-based financial advice. There’s a whole universe of technology that also supports those companies, and they’re growing at an even faster rate. We think there’s some great opportunities there as well.

Our playbook is to identify a wealth management platform that is national in scope in the U.S. that has a very strong and talented management team. We’re looking for someone who has the ambition to grow a leading global wealth management platform that could compete head-to-head with the likes of a UBS in 10 years. That doesn’t exist today.

These firms are interesting to us because of their recurring revenue streams. That’s what a lot of people don’t understand: It’s the future income streams that are stable and growing that make these companies attractive to buy. Plus, those income streams can be scaled relatively cost-effectively. Basically, they offer financial advice with a subscription model. It’s a subscription because customers can cancel it at any time. Sometimes I like to refer to the model as “wealth management as a service.”

PA: What trends got the market to where it is today?

Dooley: COVID-19 really demonstrated the stability of these businesses. The financial advisory industry is consolidating, and the speed of that consolidation is quickening due to changes in regulations, demographics and lots of individual firm owners heading into retirement. It’s a hugely fragmented industry. 

I predict that in five years, there will not be 15,000 RIA firms. There will be a few thousand. And in 10 years, there will emerge four to five very large, fee-based fiduciary RIAs that will go head-to-head with bigger players.

As I said, we’re looking for an ambitious company that wants to grow so we can give it the capital it needs to build a wealth management platform underpinned by leading-edge technology.

PA: How many SPACs are out there looking for RIAs at the moment?

Dooley: Three that I know of, including us.

PA: What characteristics are you looking for in a firm?

Dooley: We want a total focus on clients. I know that may sound like a catchphrase, but we have the industry experience to see who is walking the talk. Second, the firm needs to be strong in digital. Is it implementing the technology needed to give financial advice in an omni-channel way? The pandemic catapulted this industry 20 years forward with videoconferencing. That will make a big difference for advising clients in a personal way.

PA: Will you be talking to smaller firms?

Dooley: We won’t consider companies that have less than $20 billion in assets under management, but these are the firms that may, someday, be acquired by whichever company uses the Everest SPAC to publicly list its company. We’re looking for a larger company that is already acquiring firms and bolting them onto its platform.

We want an RIA consolidator that has built leading businesses and has the ambition to leapfrog its competitors. It’s not going to need an additional $10 million in capital or $100 million in capital to do this. It will need billions in capital. And the only way to access that capital is by being a publicly traded company. Once the company has this capital, it can make larger strategic acquisitions.

This means lots more competition for smaller advisory firms. What would life look like for them if this scenario comes true? The market is continually becoming more competitive and institutionalized. With more SPACs in this space, the whole trend will move even faster.

PA: You also run a private equity firm. Why start a SPAC in addition to that firm? Isn’t this an either/or kind of approach?

Dooley: Starting a SPAC is a fantastic opportunity, and it allows us to meet and network with an entire industry in a very short space of time. When you read our prospectus, you see that our SPAC puts the owners of the business in control of that business. We will take a back seat. We will hand the keys over to you once the deal is done.

I don’t believe it’s an either/or situation [either a SPAC or a private equity investment]. It’s a continuum. SPACs can help firms at a different stage in the business than other investors. SPACs are a capital markets financing tool used by private equity firms, entrepreneurs and venture capitalists.

PA: What is your business goal?

Dooley: There are very few global brands that provide 100% fee-based advice as a fiduciary. People want the personal advice, and they want that advice to be as easy as using Amazon. This doesn’t exist today. We want to enable a wealth management as a service platform, like a software as a service platform.

I believe we’ll see a very large global wealth management platform that emerges, and it will trade at 25, 30 or 35 times multiples, because of the scalability of the revenues.

Having scalable revenues is common in other industries, but the potential has not been well recognized in the RIA space.