The Art of Balancing Market Conditions and Client Motivations in Deals

Corey Kupfer
5 min readFeb 1, 2023

In the wealth management industry, deals have been reaching record-breaking levels in recent years; however, a recent DeVoe report showed a significant drop in deals in October 2022, which raised concerns among industry professionals. Despite this report, I personally did not observe any impact on deals at the time. Valuations were still holding strong, and deal structures were simply adjusting by requiring less upfront investment and more in the back end. This allowed sellers to still receive full value for their assets. Despite this dip in the deal market, the overall deal flow was still strong, and valuations remained high.

Join me for a solocast on how to navigate deals with a fluctuating market, client motivation for deals in adverse market climates, and how a fluctuating market may or may not affect you.

It is important to note that the state of the deal market can be influenced by a variety of factors:

  • Inflation
  • Higher interest rates
  • A less stable stock market
  • World events

All of the above, and more, can potentially have an impact on deal flow, interest, and availability. While there may be assumptions that high deal volumes and interest rates are directly related, this is not necessarily the case. In fact, high deal volumes have occurred during times when interest rates were in double digits. It is important to understand that the impact of these factors can vary greatly depending on the industry and sector. As such, it is crucial for wealth management professionals to stay informed about these trends and be proactive in adjusting their strategies accordingly.

As a lawyer, I am a documenter of deals, but I am also a trusted advisor to my clients. It’s important to understand both the market conditions and the motivations behind each deal and to find a balance that works for everyone involved.

THE IMPORTANCE OF UNDERSTANDING LONG-TERM TRENDS IN DEAL FLOW

Despite still seeing pretty stable deal flow and valuations, I do recognize that there can be an impact on deal flow and the investment landscape when interest rates rise to the degree to which they currently have. In fact, the recent hike of 3/4th of a point was beyond what was expected, and may very well have an impact on the market. Personally, however, this potential correlation has been slow to materialize. I’ve only had one client pull out of a deal.

That’s not to discredit DeVoe’s data — it’s solid data — however, my undertaking of the recent RIA M&A series has given me a look into how exactly that data is expressing itself in the real world. My interviews, especially with buy-side RIA aggregators and integrators have shown me that there’s still a significant deal flow and interest happening.

It is possible that there may just be some lag time before the effect of the rate hikes really begin to reveal themselves, and it may very well be too soon to tell if this is just a temporary dip, or something more long-lasting.

A FLUCTUATING MARKET AFFECTS SPACES DIFFERENTLY

An important thing to take into consideration when evaluating any relationship between the market and deal flows is that each sector is different. The market can impact different sectors in any number of ways. For example, the COVID-19 pandemic’s effects on the market showed some interesting results.

The housing market is subject to fluctuations, and high housing values can lead to a period of adjustment for both buyers and sellers. During times of economic change, uncertainty can cause individuals to slow the process of buying or selling a house. The gap between a seller’s expectations of their home’s value and a buyer’s willingness to pay can lead to deals not getting done. This can happen in the M&A space as well, where multiples are coming down and buyers are cautious about paying high prices.

Sellers may be holding out for prices to go back up, but the motivations for selling a home often go beyond just high valuations. Retirement, merging for better growth, or hitting a limit on growth are all reasons why a seller may still want to sell even if valuations are lower.

Market conditions are always a major factor in a client’s decision to sell, but there are many other drivers at play as well. I have seen clients pull back from a deal because they still had some gas in the tank and wanted to continue building their business. Other clients may have hit a limit and want to be in a bigger place, freeing themselves up to focus on what they want to do.

APPROACHING THE MARKET IN UNCERTAIN TIMES

I would be remiss if I didn’t emphasize the importance of being cautious and exercising discretion when making deals based solely on market performance or relying solely on general economic reports and media. These generalized reports may not accurately reflect the conditions of your specific industry. I’ve been in the industry for over 35 years, and I’ve noticed patterns in how the market fluctuates over time — going from hot to slow, and back again. There will always be deals to be made, even in a seemingly “bad” economy.

I understand the human tendency to want to avoid uncertainty, but I encourage you to maintain an open mind; always keeping the possibility of deal-making open. Take in all the information, including external economic and political factors, but do not let them cause you to completely stop considering and making deals.

Corey Kupfer is an expert strategist, negotiator, and dealmaker. He has more than 35 years of professional deal-making and negotiating experience. Corey is a successful entrepreneur, attorney, consultant, author, and professional speaker. He is deeply passionate about deal-driven growth. He is also the creator and host of the DealQuest Podcast.

If you want to find out how deal-ready you are, take the Deal-Ready Assessment today!

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Corey Kupfer

Corey Kupfer is an expert strategist, negotiator and dealmaker with 35+ years of experience. He is also the creator and host of the DealQuest Podcast.