Citywire recently sat down with Chas Burkhart, CEO of Rosemont, to get his take on the state of RIA valuations amid the sharp decline in equity markets this year.
The RIA industry has seen unprecedented M&A activity over the past few years. Recent PE investors’ valuations of 15x or 20x run-rate EBITDA are based on assumptions that will be significantly strained in the early years of these transactions, Burkhart told Citywire.
Burkhart explained that private equity investors model their targets’ future growth and returns on a host of financial assumptions, namely revenue growth. But much of that growth has been driven over the last 10 plus years by constantly rising markets. Burkhart said there has been “little in the way of truly organic growth.”
The surge in valuations “is setting a very dangerous precedent that has great risk of being unwound,” Burkhart said.