Print this article
Does The CI Financial IPO Make Sense?
Charles Paikert
19 April 2022
Can opportunities at all.” But he cautioned against underestimating any of the M&A consolidators, including CI. “The RIA business has a lot going for it: growth, significant margins, a service that is valued by clients and an offering that is much in demand,” he noted. “On the risk side, the talent shortage is acute, brand differentiation is harder to come by, and no firm has achieved true dominance or brand presence yet.” Unquestionably, the CI Financial IPO is “another valuation marker for the RIA space,” as practice management consultant John Furey, founder of Advisor Growth Strategies put it. But should it be happening at all? “With the incredible amount of private equity capital seeking to invest in our industry, I have to wonder why a firm would choose an IPO in this environment to satisfy a capital need,” he said. Indeed, large RIAs, including Mariner, Carson Wealth, and Savant Wealth Management have all been valued at multiples higher than 20 times EBITDA in the private market. “Publicly traded RIAs are going for less and they are beholden to the markets,” Furey observed. “If there is capital available in the private markets, it may make sense to stay private with capital markets as the final liquidity pool.”
Of course that may be wishful thinking coming from a rival buyer.
A successful IPO means that CI now has additional currency for continuing to pay up for acquisitions. “Not only can they offer cash, they can also offer stock as well to sweeten deals,” Welsh noted. “It could be a very powerful differentiator in the professional buyer marketplace.”
In an ideal world, a company such as CI would have begun to implement its plan to integrate the firms it acquired, detailed how synergy would be achieved, and created a public brand, Tibergien pointed out.
Worth the hassle?
Noted M&A valuation expert Matt Crow, president of Memphis-based Mercer Capital, told RIABiz that the IPO “feels like financial engineering to me and the net present value of financial engineering is usually zero.”
Crow went on to question whether the “marginal valuation” and attention the public offering attracts justifies additional fees and higher compliance costs. And is all that hassle worth it, he asked, “just to restructure their balance sheet?”
Many privately held businesses are valued at a higher multiple than public companies, and avoid the administrative costs, management requirements and quarterly earnings reports that a public company requires, Benton noted.