Written by: Michael F. Odar, CFA®, Chief Executive Officer, Greenleaf Trust N.A. is an affiliate of Greenleaf Trust Delaware®
Last November, I wrote about the Great Wealth Transition. The reference is to the pending transition of wealth from one generation to the next. According to those economists, Baby Boomers, the youngest of whom are 61 years old and the oldest are 79 years old, will be transferring massive amounts of wealth they created to their heirs over the next two decades. Estimated amounts range from $100 to $124 trillion.
The estimated amounts refer to the transfer of capital market assets – stocks, bonds, cash, etc. But what about the transitions of businesses to the next generation? Those are occurring too, but there are a few more “interested parties” involved. Namely private equity (PE) firms have become increasingly more involved in business transitions.
PE firms are investment management companies that raise money from investors to acquire or invest in private companies. They commonly do this with the goal of improving the value of the acquired and then eventually selling it for a profit. Over the last ten years, PE firms have become flush with cash and have been on a buying spree to create returns for themselves and their investors. Initially more focused on the acquisition of manufacturing and industrial companies, their cash positions have required them to shift their focus to other types of companies. Healthcare services (medical practices, hospitals, etc.), professional services (accounting and wealth management firms) and even consumer residential services (roofing, HVAC, security, etc.) have become popular target investments.
PE firms have also found ways to indirectly get involved with business transitions. Aggregator firms are typically larger companies that scale their growth through the acquisition of smaller companies within a single industry. These firms are often funded by PE firms. And a big focus for them over the last five years has also been the consolidation of independent wealth management advisors. Merger and acquisition activity in the wealth management space continues to hit all-time highs according to the latest Echelon RIA M&A Deal Report. Even in our markets, we are noticing a lot of this type of activity.
As the average age of the independent wealth management or registered investment advisor (RIA) owner continues to increase, those that did not create a succession plan are increasingly turning to PE firms and aggregators as their answer to transitioning their business. When selling to these types of larger non-local profit seeking consolidators, I wonder whose best interest is in mind? If done right, clients involved in the transition can benefit from access to more services, sophisticated tools, better technology, elevated thought leadership, and hopefully continuity of care. Disruption though occurs when profits are put in front of relationships.
Greenleaf Trust is structured to remain privately held into perpetuity. We have the ability to serve from generation to generation and intend to do so. We also may make acquisitions in the future as part of our long-term strategy to Serve Clients More. When and if that happens, we will always put client relationships first.
About Greenleaf Trust:
Greenleaf Trust N.A., a Nationally Chartered Trust Bank regulated by the Office of the Comptroller of the Currency, is wholly owned by Greenleaf Financial Holding Company, a Delaware corporation. Greenleaf Financial Holding Company is also the sole owner of Greenleaf Trust Delaware, a Delaware limited purpose trust company, is regulated by the State of Delaware, Office of the State Bank Commissioner., Both Greenleaf Trust and Greenleaf Trust Delaware provide various fiduciary and non-fiduciary services, including trustee, custodial, agency, investment management and other non-depository services. Greenleaf Trust and Greenleaf Trust Delaware offer personal trust, retirement plan and family office services to families and entities.
Greenleaf Financial Holding Company and its subsidiaries do not provide legal, tax or accounting advice. Please consult your legal, tax or accounting advisors to determine how this information may apply to your own situation.