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David Grau: All right. Good afternoon, everybody. Welcome to Succession Resource Group’s 10th Annual 2026… well, it’s not the 10th annual 2026 review, but it’s our 10th annual review of the M&A data. This is our 2026 edition. Really excited to have you join us here today. We…

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David Grau: we like being able to pause in January, aggregate all the deal data, all the succession data, everything that we have seen happening in the prior year, and try to feed that back to you, us, as an industry, just to be able to keep our collective fingers on the pulse of what’s happening out there for buying and selling practices.

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David Grau: This is probably not your first rodeo, I know there’s a bunch of you that join us every year for this, as well as listen to us occasionally at the custodial, broker-dealer conferences, FPA meetings around the country throughout the year.

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David Grau: We want to try to help you stay abreast of this, because at the end of the day, big firm, small firm, RIA, duly registered, whatever the label is that you are wearing today.

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David Grau: Your business, your advisory practice, is probably your most valuable asset, and we want to make sure, whether you’ve done a valuation or not, you can at least have a number next to it on your personal balance sheet, because it has such substantial value, and frankly, today, it’s harder to understand than ever before.

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David Grau: Right? You read the trade publications, the press releases out there about deals, it’s enough to make your head spin. So, we’re gonna try to share that data with you here today, but also carve out time to answer your questions, which hopefully you either A showed up with some, or B,

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David Grau: We’re going to prompt some, just organically, as we progress through the slides here today. So.

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David Grau: Couple boring administrative things to knock out first.

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David Grau: The housekeeping items… Watch the chat.

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David Grau: There’s a chat feature in here. Granted, it’s a one-way chat feature, but there you go, see? There’s information that will be dropping in there for you, so it should be helpful. Use the Q&A feature. There’s a Q&A panel here, I promise you, we will actively watch it. If you have technical issues, that won’t be Parker and I, we’ve got Guy here, our amazing moderator, that will help with that stuff, but if you have questions.

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David Grau: As we progress through the slides.

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David Grau: We will make sure we either answer them organically as we progress, because Parker and I will be watching the Q&A panel, or we’ll answer it towards the end, because we are planning to reserve 15-20 minutes for that specifically. So…

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David Grau: Beyond that, there is a poll question we’re gonna pop up. This just helps us have a better idea, better understanding of you as our audience, where you’re at.

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David Grau: what’s relevant and interesting to you, so you’ll see that pop up here momentarily. We’ll take it down, and won’t get in the way. You know, Zoom, presumably, it’s off to the side.

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David Grau: So, you’ll see the poll question pop up, case in point. So there’s a poll question, if you would participate, that would be lovely. If you don’t, we’ll just leave it up forever. So, a couple other easy ones. We always get questions on slide availability.

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David Grau: These slides are available. Our team will be reaching out to you after we get done with the session here today, either tomorrow or certainly early next week, if you want a copy of the slides.

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David Grau: Just let Craig, Sabrina, Nikki, and our team know, and they will happily share them with you. And…

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David Grau: This session is being recorded.

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David Grau: The recording should come to you, I think, automatically, usually within 24 hours, so watch your inbox. If you have, you know, Zoom not whitelisted, you might want to watch for that, because it’s one of the system-generated messages, I believe. So it might land in your spam, but I promise you’ll have it.

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David Grau: So, with that, a few other quick ones here on housekeeping. Upcoming webinars. Today’s session obviously focused on mergers and acquisitions.

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David Grau: But there’s a lot of other stuff that we want to try to unpack throughout the year here, so we’ve just got the next couple coming up, February, March, and April, that we thought we’d share with you here.

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David Grau: We have the… so this is the 10th annual M&A update that we’ve done. We have the first annual update that we will be doing from now on, on compensation plan design compensation strategies, led by none other than Julia Sexton and Ryan Grau. Julia is our compensation specialist.

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David Grau: Ryan, I don’t think would hang himself out there as a compensation specialist.

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David Grau: But given all the work he does in valuations, and all the compensation that they review through the P&Ls and financials.

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David Grau: It’s a good tag team, so it’ll be a lot of data, a lot of strategies and recommendations, so if you have advisors on your team, you’re curious about compensation amounts and strategies, don’t miss that one.

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David Grau: And then we’ve got, running your firm like you have options coming up. You’ll see these links in the chat.

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David Grau: Who’s SRG? Well, hopefully you know, because you registered, but if you just took us on faith, the topic was interesting enough, you registered and didn’t know who we are. We’re a consulting organization, we’re headquartered in Portland, Oregon. We have a team of amazing experts, one of which is joining me here today, but there’s a handful of others. We tell folks we know a lot about a little.

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David Grau: All we do as an organization is eat, sleep, and breathe the value of your practice.

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David Grau: Whether that’s valuing, buying, selling, merging, formalizing your entity structure so you can share it, that’s what we do. That is all that we do.

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David Grau: We’ve got a team of experts in-house. If and when we have the pleasure of working together, or working together again, it’s likely because

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David Grau: you’re hiring us because we have the in-house expertise with the consultants, for sure, because the strategy matters, right? Like, you need people who have done this for years. They’ve seen things work, they’ve seen things not work.

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David Grau: we can learn something from both. But also, we’ve got the attorney, CPA, all in-house to deliver just a more comprehensive solution. So, at this point, we’re a team of, it says 20 professionals, we’re a little past that at this point, but a team of 20 professionals, dedicated

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David Grau: do your business. So that’s us in a nutshell. Again, I’ll also share on this next slide, we are a succession resource group. We do more than just succession. That’s definitely the end

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David Grau: of the work that we do, but it starts usually with valuation, entity work to make succession better later. There’s a lot of other stuff we can help you with. Basically, if it impacts the value of your enterprise.

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David Grau: We’ll help you with it So… Let’s get into it.

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David Grau: I’ll be leading the session here at the very beginning.

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David Grau: But then I’m gonna hand it off, and Parker will get to carry the water for a while. I have a more, I think, kind of macro perspective on things in my role as president and CEO. I’m not as close to the deals as I used to be, much fun as it was, but Parker is.

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David Grau: And so, Parker and I worked hard looking at the data from last year to tease out the most interesting and relevant things, so we’re gonna ping-pong back and forth and try to share that perspective with you.

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David Grau: What we found noteworthy, most interesting, and then from there, like I said, we’ll get into questions that you all have.

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David Grau: So… With that…

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David Grau: This is going to start with a little bit of data, so worth sharing with you the basis for that data.

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David Grau: This is all transaction data that we derived the stats and information, even recommendations in some cases, that we drew it from. So it’s 171 transactions.

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David Grau: 14 billion-ish in AUM.

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David Grau: source of this data is a combination, right? And I’ll share more on the next slide there, but I would tell you

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David Grau: This is, as far as I can tell.

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David Grau: A the only dataset like this that is shared and reported on, B, Incidentally, also the largest.

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David Grau: But if it’s the only, of course, it’s the largest. But in general, there are other talking heads like us that try to opine on this topic and share information, just most of it tends to be on the stuff that you can report on, and that’s the public stuff, like the volume of transactions taking place, and that’s great.

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David Grau: We read it, they write it, you probably see some of these updates. What we’re talking about today is going to go a level deeper, because we worked on these deals, or have information on them.

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David Grau: Source of this data, a little bit different. So this is our data, so we can go really deep, where, in many cases.

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David Grau: Our valuation team did the valuation, and then we helped broker the deal, put the financing structures together, so we know a lot about them, but also.

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David Grau: we’ve got some pretty amazing partners, and I say pretty amazing, you know, Oak Street Funding and PPC Loan, good long-time partners, yes, good institutions that will lend you money, they’re good resources for that. But I say great partners because they paused and took time

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David Grau: maybe a little altruistically to gather the data from all their transactions and share them with us so we can get a better cross-section of the industry and what’s really happening out there. So yeah, there’s a lot of deals in here that we worked on, but there’s also a lot of deals in here we never touched.

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David Grau: But we have the data on, because they’re kind enough to share, and we’re smart enough to take the time to ask.

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David Grau: Last one here, and then we get into the fun stuff, is thanking our sponsor.

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David Grau: Assetmark, if you already work with them, you know this, don’t work with them, you should know it.

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David Grau: They have been long-time, I say sponsors, sort of an informal sponsor of SRG in that they’ve always been really good about keeping this subject matter, mergers, acquisitions, building enterprise value, top of mind, having us come speak at their conferences, their gold forums, I mean, they do an incredible job.

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David Grau: Of making sure But they’re the squeaky wheel on this topic, and…

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David Grau: That might not sound important, but succession, valuation, it’s one of those things that it’s really easy to put off until it’s too late. So, we can’t thank them enough if…

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David Grau: Melissa or Michael happen to be on or listening, listening to the recording, hats off, appreciate the partnership, certainly helping sponsor, you know, the session here today. These things take time, they take resources.

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David Grau: We couldn’t do it without you. So, let’s dive into the data now, and start talking more about what’s actually happening, what are our observations. I’m going to start high level here with a couple quick hitters.

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David Grau: Private equity, surprise! I know, you didn’t see that one coming. Influencing the value expectations of firms. Now, you’ll notice I didn’t say PE influencing value.

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David Grau: happening, but I think in a more indirect way than I would have otherwise expected, and that is.

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David Grau: Private equity deals are happening. You see them out there, they’re talked about in the trade publications. There’s not a ton of them, but there’s enough of them, and they’re at high enough multiples on the surface that they get the headlines, and they are noteworthy, right?

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David Grau: I’ll give credit where credit’s due.

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David Grau: But…

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David Grau: The size firms that private equity and the aggregators are interested in is not the majority of the advisor space, and number two.

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David Grau: the devil’s in the details, and we don’t have time to unpack it today, but I can tell you, you’ve seen enough of the private equity deals and offers.

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David Grau: It’s not… when they offer you 14 times, 10 times for your practice, they’re not delivering a duffel bag full of cash.

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David Grau: Right? It takes the next 4 or 5 pages to understand the terms that can make a multiple that’s that high actually cash flow.

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David Grau: So, they’re definitely having an influence, though, just simply through the expectations that advisors now have, both on the buy and sell side. Sale multiples then, as a result, partly, I think, because of private equity, but Parker can share more on his thoughts on why, but the multiples are trending up.

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David Grau: And that’s not, again, news. If you attended the last 9 of these that we’ve done, they’ve generally always trended up, with the exception of one year.

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David Grau: And even then, they didn’t move up by much, they didn’t move down by much, but they moved up

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David Grau: a noteworthy amount this year. So, we’ll talk more about that one

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David Grau: I think that’s interesting because the third one here, fewer, larger buyers with more experience.

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David Grau: Usually that would mean values are going down when you’ve got less buyers, right? I mean.

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David Grau: we didn’t get into it today, necessarily, in the stats, but Parker, you know, because I asked you earlier about this.

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David Grau: there’s fewer larger buyers. What was the buyer-to-seller ratio from last year that we published? Do you remember?

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Parker Finot: Yeah, that was, 66 to 1 last year.

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David Grau: Okay. And that’s a lot, right? How many buyers do you actually need when you sell? I mean.

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David Grau: One, really. 3 or 4 is nice from a competition perspective. 66 is about 60 more than we realistically need, and that number… I think it… well, I don’t think… I know it’s trending down, I don’t know where we landed this year. You might know that as well, Parker, I’ll put you on the spot.

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Parker Finot: Of course, of course, yeah, 61, so decreased a bit, and for added context, in that same statistic, the year prior, so 23, was around the 85 mark, so it certainly has reduced in recent years.

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David Grau: Which is crazy, right? Because everyone I talk to is a buyer until they’re a seller, but it does seem like maybe there’s less…

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David Grau: tire kickers out there. I mean, it’s more serious buyers, but they’ve got experience, they know what they’re doing. Last one, and I’ll hit this one quickly, because we’ll talk probably more about it later, is more internal sale events. And that’s not noteworthy in the sense that there’s more succession planning taking place, but it’s noteworthy because

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David Grau: Most of these that we’re seeing are not supporting a partner retiring and younger Gen 2, Gen 3 folks buying them out.

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David Grau: That happens too, but that’s separate. These are just straight-up purchases buying into a firm that these advisors are working at.

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David Grau: And, I mean, it’s happening a material amount of the time, where we want to take note of it and share it with you today. So, those are our sort of high-level stats that we thought were worth sharing to start with here.

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David Grau: Knowing what I just shared, private equity, values trending up, but fewer buyers.

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David Grau: I guess I’ll give you kind of a broad question to start with here, Parker, that’ll tee you up.

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David Grau: If I’m an advisor today, in 2026, then I’m gonna be selling.

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David Grau: Would you say I’m better off this year than I was last year, or worse?

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David Grau: Generally speaking.

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Parker Finot: Yeah, yeah, good question, gets right to it. So my answer would be generally better off, first and foremost. Of course, we’re gonna go into some more detail in a second here, but, multiples have trended up, not just this last year, but year over year over year. And not only that, that multiple is applied typically to a larger basis. So you’re getting a larger multiple on a larger base factor.

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Parker Finot: Right? Right. Outside of that, there have been, again, we’ll go into more depth on this in today’s discussion, but additional all-cash deals and more… a greater percentage down on any given transaction, while some of the other core components of the transactions have remained relatively flat or similar to prior years, so no

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Parker Finot: Real adjustment there, and a lot of those factors already happen to be relatively favorable for sellers, so generally speaking, yes, it’s a better time to sell now than, say, a year ago.

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Parker Finot: With that, actually, let’s go ahead and move forward and go into some more of the depth here as far as the statistics are concerned from the transactions that we’ve observed.

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Parker Finot: So, first and foremost, we’re going to talk about EBITDA multiples or earnings multiples. We want to give a little bit more spotlight and credence to this, just being that in a lot of circles, the revenue or recurring revenue multiple is certainly the key source of discussion, but a couple of things. As you move up market, so purchasing larger firms, freestanding, going concern type of operations.

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Parker Finot: you’re going to have an earnings multiple attached to that business. That’s how it will be transacted against. Additionally, anytime there are internal transactions, both from the traditional succession planning side, but as well as the sort of partner-to-partner buyout, those are based on those earnings multiples. So, we like to highlight that as well. You’ll see there that the average earnings multiple came in at about 10X. That was an

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Parker Finot: increase over prior year, which was 9.2 in 2024. So, in line with what we’ve discussed to this point.

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Parker Finot: Couple of additional factors there. One, you’ll see in that chart to the top right, the median multiple is coming in at 11.65, which ultimately means that more of the deals, statistically speaking, at least from our data set, came in above that average. However, the outliers, or, you know, the lower performing transactions below the average were sizable enough to pull that

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Parker Finot: that weighting back down below the median. So, just on a per-chance basis, you’re likely to land above the average. However, some of those smaller, multiples are dragging that back down. I do want to note, as well.

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Parker Finot: Obviously, this is true of both earnings multiples and revenue multiples, but these earnings multiples are extremely specific to every given business, right? So, the baseless for value on an earnings multiple is a discounted cash flow valuation. With that, that’s the expected earnings of this existing business as it stands today, as compared to a comparative market analysis where we’re saying, hey.

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Parker Finot: what were the comparable sales that happened for similar types of businesses, and in that instance, you know, a buyer may leverage synergies from the acquisition of those revenue-producing assets that they’re rolling into their enterprise, extracting more value from it. So, that’s something that I like to differentiate here, in that one of the best ways to

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Parker Finot: Get an understanding of value, both for revenue and earnings.

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Parker Finot: But even more specifically on the earnings side is a formal business valuation. Not only that, there’s another layer to compound things, which has to do with business cycle, that also influences earnings multiples in a bit more of an extreme fashion than the comparables. Dave, I don’t know if you wanted to,

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Parker Finot: Add some color on that.

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David Grau: No, I mean, I think for the most part.

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David Grau: You hit it, but I did have a question, actually, that came in that was topical to what you were just talking about, frankly, Parker, and that was.

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David Grau: you haven’t talked about the revenue multiples specifically, but you mentioned them, and you mentioned the EBITDA multiples. The question that came in, I’ll just say generically, was.

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David Grau: Like, when is it appropriate to use one versus the other? Like, at what size? Is it a billion in AUM? Like, 10 million in revenue? 1 million? Like, where would you draw the line if somebody asked you that?

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Parker Finot: Yeah, yeah, the sort of rule of thumb baseline reference point that, we’ve been focusing on in recent times is 3, sorry, $3 million in revenue and above.

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Parker Finot: Yeah.

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David Grau: Right? And I guess there may be exceptions to that if I was at a million and a half and doing an internal succession plan.

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David Grau: No, maybe my profits matter.

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David Grau: more than normal. So, exceptions to every rule, right?

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Parker Finot: Exactly. Those internal focus transactions, a little bit differentiated, as opposed to, say, an external party purchasing the entirety of the business, but saying, I don’t need new staff, you have staff. I don’t need new offices, you have office. So, I’m gonna buy your existing operation as it stands. I’m gonna take the way that I manage the business, maybe implant some additional, personnel to help drive some more value.

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Parker Finot: But I’m purchasing your business as it stands today. That’s, again, where the earnings multiple is really impactful.

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Parker Finot: In that sense. So, moving on to everyone’s favorite topic, revenue multiples, and most specifically, recurring revenue multiples. So, as we mentioned earlier on, these multiples have risen, coming in at about 3.27X there, so…

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Parker Finot: about a .19X gain over the prior year average. Of course, as you can see.

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Parker Finot: These multiples have continued to trend up and to the right, much like many different markets. However, in this market, we’ve seen that long-term growth in value and sales price that has materialized.

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Parker Finot: But the stat’s easy to read, you can all read. So, what is driving the difference in the prior year? I’d say it comes down to a few factors.

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Parker Finot: Cost of capital decreasing, so rates haven’t moved significantly, and of course it happens over time. But they’ve started that downward trend, and there is some expectation that that trend will continue.

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Parker Finot: Which is influencing, you know, buyers’ appetite for external capital. Additionally, I believe I alluded to it as well, that there’s been favorable market performance. If you look at the last 3 years, say, the S&P 500,

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Parker Finot: returned about 20% on average across those different years. So again, if we’ve got a larger base that we’re applying a multiple against, better for the seller, but also buyers say, well, hey, if this keeps growing at 20% each year, well, that’s gonna have my fixed cost, my fixed purchase costs, decrease in relation to the value I’m receiving. Now, naturally, there’s a…

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Parker Finot: Could do an all-day seminar about what may or may not happen to the markets, but we’ve seen positive performance in recent years, which we believe is fueling some of this.

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Parker Finot: Dave also mentioned the private equity phenomenon around The fact that… It’s influencing mainstream transactions.

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Parker Finot: and not necessarily causing the same pricing, but helping certain buyers feel better about the price they’re paying, in the sense that they’re not paying the PE multiple, of course.

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Parker Finot: Lastly, I want to mention that there is a value arbitrage arrangement that we’ve seen, or leverage, where larger buyers are purchasing smaller businesses, saying, you know, your multiple may be,

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Parker Finot: 3X, or we’ll pay you 3.5x for it. Ours would come in more in the 5X range, and therefore, they expect to, to receive that benefit over time. Naturally, you have to execute on that. It’s accretive, but that’s the general thinking there that we’ve seen.

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Parker Finot: Across certain transactions.

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Parker Finot: So, with that, let’s… Let’s move on.

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Parker Finot: being…

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Parker Finot: that we’ve talked about averages, let’s talk a little bit about the distribution of these multiples. So, we have, of course, seen what we would describe as that typical bell curve

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Parker Finot: distribution there, 2X. Really, we like to focus on what is the, you know, above the average line, how are those deals coming across the table, how are those multiples being achieved?

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Parker Finot: Those are driven by a few factors, one being, open market transactions, so sell-side advocated transactions, of course, favorable terms, I think.

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Parker Finot: Either you’ve heard us talk about it before, or you’ll hear us talk about it today, but price is one of the levers, one of the variables that influences these deals. You might pay a higher price for much better terms, and so we’ve seen certain deals where

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Parker Finot: Financing is preferable, tax allocation is preferable. Clawback contingency terms are very supportive for buyers, so all of those factors

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Parker Finot: can translate to a higher multiple. Certainly some buyers are exercising economic synergies, so think

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Parker Finot: broker-dealer RIA umbrellas, where they might receive a higher payout, within that ecosystem, right? So they’re going to leverage that differential. And then a couple of other factors, and these are also most heavily attributable for that last segment there, the greater than 4.5x.

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Parker Finot: is cross-affiliation transactions, so recruiting an advisor from another firm, bringing them over. Obviously, there’s more disruption, there’s more potential breakage or attrition, there’s just more inconvenience, a lot of different factors there, so generally sellers are going to receive a higher dollar for that trade-off.

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Parker Finot: And then lastly, of course, something we see commonly is aggregators or serial acquirers that are willing to pay more. Again, hearkening back to that value arbitrage being, at least in part, an influence there.

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Parker Finot: Last thing I’ll mention on this slide, and then we can move ahead here, is just that median, just to give you another frame of reference. The median on all these transactions for recurring revenue came in at 3.12X, so not a far cry from the average, both coming in that 3.25 range, about.

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Parker Finot: So… That is that distribution. Let’s talk a little bit more about regionality.

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Parker Finot: Here’s another point as well that we like to stress, or comes up frequently, is averages are important, they’re helpful, helps to give directionality as to what’s happening, but they’re not the end-all, be-all as far as structuring a transaction. I…

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Parker Finot: I can absolutely tell you, we’ve had folks that show up and say, the average multiple is X, I’m selling at that average multiple.

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Parker Finot: And, you know, my buyer is buying at that multiple. Happens all the time. Is it the right way to do it? Of course not, but it’s certainly viable if both parties are agreeing to that. Now, I’m just talking about averages to say that

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Parker Finot: not only is there a headline average, but this is even broken out by region, as you can see on the screen there. Midwest and 25 had the best performance in terms of recurring revenue multiple.

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Parker Finot: Northeast and West came in tied just about for second place, if you will, and then the South region had, trailed in that third position, as far as the multiple is concerned.

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Parker Finot: Just a quick note for you, as far as our data set is concerned, we had the most transactions in the south region, followed by West.

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Parker Finot: and then Northeast and Midwest.

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Parker Finot: split the difference there, as well. So, just like to highlight that for you.

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Parker Finot: One other point to mention before we move on is just the geographic impact on buyer and seller, in that

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Parker Finot: it matters who’s buying and who’s selling, of course, and to that extent, I mean where the buyer is located. So if you have a remote buyer in a transaction, they are generally going to be paying more than a same-state acquirer, as you might expect. The data proves that out over the last 5 years. We’ve seen a purchase price premium of about 13%,

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Parker Finot: For those cross-state purchasers, just showcasing that, you know, they’d pay more dollars to acquire the business in that sense.

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David Grau: Well, that’s a good spot to pause, Parker. So, we talked a lot about the value, right? I’m glad you spent enough time to bifurcate the earnings multiples from the revenue multiples, because it’s not a one-size-fits-all approach. It’s right tool for the right job, and we had some good follow-up questions through the Q&A panel there, further flushing that out.

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David Grau: But I also heard you mention

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David Grau: terms, right? If I get a duffel bag full of cash at close, as opposed to a 10-year earn-out, those are very different value propositions for me, so…

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David Grau: We talked earlier, you know, fewer larger buyers, values continue to increase, interest rates are down a bit, we won’t predict on the future, but for now, they’re down.

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David Grau: How’s the M&A market responded in terms of these inputs and payment terms? Like, what are you seeing? Is that having an impact? Not having an impact?

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Parker Finot: Yeah, I would say that… Hmm…

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Parker Finot: in large part, it’s not creating a big influence on the multiples that we’re seeing. Really, again, it goes back to what’s driving the increase in value. It’s those different situational, components, primarily. But as far as payment composition and,

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Parker Finot: cash balance on the purchase, things like that. Certainly, we have some updated statistics on that that we can share, and I’ll go ahead and go through those now.

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Parker Finot: First and foremost, the average down payment on these transactions was about two-thirds. That’s increased incrementally year over year, so it was 63% a couple years ago, 65% two years ago, and then 68% in 25, so again, not a large difference, but certainly continues to increase.

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Parker Finot: Beyond that, of course.

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Parker Finot: We can take a look at the difference between when you’ve got external capital and when you don’t. As you’d expect, external capital is producing about an 80%

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Parker Finot: down payment on the transaction, and without external capital, that average is coming in at about a third of the deal with, being funded at closing. So…

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Parker Finot: just in line with what you would expect there, but we do like to highlight that for you. I will say…

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Parker Finot: And we’re going to go into some more depth around financing strategies in a moment here, but there’s just a prevalence of external capital available from a number of different sources, and obviously interest rates starting to decrease is helpful as well.

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Parker Finot: So, to that end, as far as the financing strategies, external financing has increased. Again, I’ve mentioned previously, that

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Parker Finot: more broker-dealers and RIAs are coming forward with lending programs, or bolstering those programs, or enhancing them, whatever it may be, and those are… can be a great option. Obviously, they’re not available for all parties, but it’s opening that pool of capital, or that…

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Parker Finot: that style of capital to more transactions. And so that’s where we’re seeing some of that increased usage. Of course, it’s key to note that there are trade-offs between, sort of, in-house financing and dedicated commercial capital.

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Parker Finot: We could probably elaborate on that on another time, but

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Parker Finot: there are certainly some trade-offs to consider, so it’s not an automatic answer, but certainly another resource available. With that, naturally, you’d expect buyer capital to decrease. Some folks simply feel that it’s a good use for their capital, and therefore they’re going to use it for that, and they enjoy being debt-free. There’s actually some

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Parker Finot: very storied, very successful firms that went a very long time without, you know, running up their debt leverage ratios. But again, it comes down to strategy and preference and availability. Not every firm has this capital just sitting by for acquisitions.

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Parker Finot: Seller financing increased technically, but realistically, it’s remained relatively consistent in the sense that there’s always some component of seller financing. There’s some technical reasons for that. There are some…

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Parker Finot: lender reasons, in that they’re not always fully financing every transaction. Some of the time, they would like the seller to have

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Parker Finot: some skin in that game there, but again, it just depends on situation. Earnouts, we have seen… I don’t know that you say a resurgence, but certainly more utilization of earnouts in the different transactions.

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Parker Finot: In varying capacities, either direct earnouts or indirect earnouts, certainly your affiliation and registration can have an influence on which of these you would use, or which you would…

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Parker Finot: more freely used. So we’ve seen more of those even slotted in in certain deals. I’ve seen, you know, external capital, traditional seller financing, and a direct earn-out, right? So a multi-pronged approach to the financing. And it just so happened to…

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Parker Finot: Support those, participants’ goals, even with the fact that the earnout was coming as ordinary income.

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Parker Finot: Lastly there, I’ll just say that escrow, traditional, true escrow, has reduced in usage here, largely in favor of what we call a lender holdback. External lender approves financing for the entirety of the deal, but

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Parker Finot: for deal terms or other purposes, they’re going to hold back some portion of that financing till a later date. So that’s commonly preferred over escrow based on ease of use. And then, of course, from the contracts and the structuring perspective, we make sure to address that on our end.

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David Grau: Yeah, and those are all so much easier. I mean, they’re more complicated in some respects, right? But it does avoid the whole collateral conversation.

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David Grau: Putting together pledges when you deal with seller financing.

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David Grau: Right? Like, I see the seller financing made things simpler in some regards, because you don’t have the commercial element to deal with, but then I watch you and the questions that come back, oftentimes from the seller’s attorney on protecting their interest, and things just… I mean, I don’t say they spiral out of control, but they definitely get more complicated.

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David Grau: When the seller’s the bank. Do you say that’s a fair statement? I mean, it’s still getting used a lot.

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Parker Finot: Yeah, yeah, definitely. It’s the debt security, considerations that are,

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Parker Finot: Certainly more nuanced can be challenging, can be very detailed.

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Parker Finot: I always say, right, we’re not dealing in an industry that has warehouses full of inventory or real property that’s just easy to repossess, resell on auction at market, right? So that’s one key differentiator there that muddies the debt security equation.

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David Grau: And deal structures…

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David Grau: frankly, control a lot of the risk in these deals, right? I mean, the price does, too. If I pay a premium, I’m gonna be a little bit more concerned, versus if I get it for a discount, but everything else being held equal, if I pay fair market value to buy your Parker practice, or buy your

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David Grau: Practice Parker.

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David Grau: there’s other ways to mitigate my risk, and it’s one of the things we haven’t spent a lot of time talking about it so far. Could you unpack maybe more on clawbacks, retention clauses.

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David Grau: Because every year, it seems like they get used almost like a coin toss, right? Like, half the deals use them, half the deals don’t, but if half of 171 transactions are using clawbacks.

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David Grau: I know, historically, there’s been a fair amount of variation in how they get used, but I feel like you’re usually pretty good about backing up and giving us a good overview of how they’ve been grouped. So, what are you seeing on clawbacks? More common, less common this year than last?

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Parker Finot: Yep. Good question. So…

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Parker Finot: As with everything in today’s discussion, we like to back it up with some data, so really, to the broader question, as far as clawbacks are concerned, or look-backs, or contingency clauses, adjustment clauses, right, they come in many names. They are relatively unchanged year over year. Like you said, about half of the deals have them. And that stat has been

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Parker Finot: very consistent in even prior years, so it’s typically about half of the deals having that clause. There’s some additional stats there on the screen that we always like to report on, so…

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Parker Finot: we’ve got them there just for your reference. One that I like… I would like to clarify just briefly, as well as the all-cash deals, and then we’ll…

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Parker Finot: continue on the, the clawback or retention clause, discussion, which is the all-cash deals, pure cash at close, have increased to about 1 in 3. However, if you control for short-term escrows and lender holdbacks, those figures are roughly unchanged at about 50% of the deals from 24 to 25. So, I like to make note of that, but…

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Parker Finot: The real star of the show.

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Parker Finot: So, what we’re focusing on here is those

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Parker Finot: deal contingencies. So, wanted to give just another layer of depth here that we don’t always go into, just to… to help support your general knowledge and or what you could explore, the different types of metrics to define the success

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Parker Finot: of…

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Parker Finot: these transactions. First of all, of course, firm, before the sale, what was the revenue that the buyer received from the assets or the business being acquired after the fact. Very easy to translate, to describe, right? Capture in a contract.

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Parker Finot: Similarly, there’s AUM as well,

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Parker Finot: really, we think of those as two variations of one style of clawback, so… or adjustment term, and that is, when you combine those two, you’re getting about 51% of the deals using some variation of that pure revenue or pure AUM. You’ll see the chart on the right there. I’ll go into some more depth around

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Parker Finot: How these different metrics or methodologies perform, and what some of their differences are in a minute here.

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Parker Finot: The next there is clients, right? So, a lot of times, most buyers and sellers could agree that, largely, we are evaluating the success of the transaction by how many of the clients transition and or are retained with the buyer, following the sale.

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Parker Finot: In that methodology, you benchmark or weight the relative value of these client relationships, and then, at the end of the day, we’re just looking to see which of these folks, or which of these households are still doing business with the buyer. That’s the measure for success.

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Parker Finot: Another, you know, primary methodology that we use is net asset flows. So there’s some…

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Parker Finot: benefits to that methodology for buyer and seller, but there can be some drawbacks in terms of implementation, which I’ll go into. And then we have 5% there allocated for the other. Certainly, you could speak to this. There are many, many ideas on how clawbacks can be structured. Of course, we…

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Parker Finot: Want to support our clients and produce a good outcome, and so, you know, we will work to address and consider the unique facets of your business.

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Parker Finot: But there are some benefits as well from just going with certain types of methodologies that are tried, true, repetitive, reliable, right? That’s what those four methodologies are that I just mentioned. But of course, we see other variations.

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Parker Finot: Now, the chart on the right, just to give some more context here, we’ve got two axes. One is the ease of implementation, the other is how much the market, the broader market, can influence the result.

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Parker Finot: So, revenue and AUM, you’ll see there, more on the easy-to-implement side, like we mentioned before, really easy to compare these things.

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Parker Finot: But they are subject to market influence, unless there are any

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Parker Finot: you know, modifications made, and I can tell you, that modification rabbit hole goes very deep, very fast, so we like to stay away from that whenever possible. But…

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Parker Finot: If the market rallies, but you’ve lost a third of the clients, well, the revenue might equal or exceed what you bought, and therefore there’s no adjustment, even though you lost a third of the clients. Same can be true of the inverse, so that’s one reason why sometimes folks do or don’t prefer those types of methodologies.

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Parker Finot: Next is the clients. I’ll say, really, that is quite easy to administer. Maybe I’ll even move that data point to the left in a later variation of this presentation, but

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Parker Finot: it’s quite easy, right? We’re just saying, which of these folks still do business with the buyer at the, adjustment date? Any folks that have departed, we’re gonna reference back to their relative value, and, keeps it

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Parker Finot: very, straightforward. There is some market influence in the sense that if the market falls out of the sky, maybe more clients decide to try something else, but as far as the technical

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Parker Finot: calculation, market has zero influence on the result, so that’s why it’s very, very low. And then net asset flows could be, in a sense, sort of a combination of those two types of styles that we just talked about, which is giving credit for inflows and outflows, departures, transfers and such, but it is the most administratively burdensome to

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Parker Finot: to implement, and could open the door to disagreeants if not captured very thoroughly in the, the contracts. So, that’s some more depth on the clawbacks, the adjustments that I think we don’t always go into that we wanted to share today.

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David Grau: And at the end of the day, I’d say goal with your clawback is, yes, mitigate your risk for sure as a buyer, at least commensurate with the price you’re paying. If you get a major discount.

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David Grau: Never seems to happen. Well, let’s just say you did. You’re not gonna push as hard, probably, on the retention clause. You may not need one at all. Again, Parker pointed out.

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David Grau: Less than half the deals have them, but it’s about 50-50 every year. Also, do your best to not over-engineer these things, and I don’t say that selfishly from our perspective of helping you do it, because it is a lot more work.

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David Grau: Because Parker will do it, he’ll follow you down the rabbit hole. I’ve seen some of these retention clauses that are 3 and 4 pages long. The problem isn’t in writing them up.

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David Grau: we have good counsel and lots of experience to help you get that done. The problem is, they’ve never then been tested and used.

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David Grau: these kind of standard AUM revenue clients, maybe net flow of assets, for example, Those retention terms, the write-up.

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David Grau: for them. All those things have been used

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David Grau: for years. People have fought about them in court, we have refined the language, so you start out with something that’s just a little bit more reliable.

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David Grau: So, I think in most of these cases, less is more. I get we’re working to mitigate risk in a deal.

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David Grau: But there is just risk in a deal. This is designed to help mitigate that as much as one can. But we talk price.

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David Grau: We’ve talked terms. Before we run out of time, can you touch on the tax structure as well, Parker? Because this is one that I alluded to earlier when we were looking at the data, and I’ll advance… you can advance the slide for me.

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David Grau: We’re seeing a lot more of the deals done as of late that are using

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David Grau: stock. It’s an equity transaction, and we have a few of those every year, but we’ve seen a lot of them in 2025, and so it’s worth noting

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David Grau: The tax component of these deals has a big impact on cash flow, and so it’s at least worth having on your radar what’s happening with the tax structure for these deals.

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Parker Finot: Yep, absolutely. To Dave’s point around taxes, another one of the key pillars of these transactions, and so we’ll expand on that. A couple of different layers. First and foremost, we’re showing you two charts on this table, or on this slide, as opposed to the one that we commonly show, which is that smaller pie chart to the right. And the reason we’re doing this is just, you know, relating back to

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Parker Finot: To the earlier comments around.

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Parker Finot: transaction type, and who’s buying and selling, that we’re observing in the market. And so, we are seeing about a third of the transactions, stock-based or, you know, LLC, membership interest-based, equity-based, as opposed to these pure, you know, asset purchases, book of business, client relationships, right, which is prevalent and common and standard in the industry.

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Parker Finot: And a lot of that has to do with, you know, increased merger activity, increased partner-to-partner acquisitions in these larger firms. Naturally, there are succession plan transactions as well, but these are more so that… what we would designate as a peer-to-peer type transaction. So we wanted to highlight that for you, which…

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Parker Finot: supports other trends we’ve talked about, about consolidation and really using more sophisticated business structures, so that really bears out in the data there. As far as the standard asset sales go, really the tax allocation

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Parker Finot: resembles much of what we’ve seen in prior years. We’ve got about 95% allocated to the goodwill of client relationships. We’ve got about 3% for the restrictive covenants, and the remainder for the business transition support.

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Parker Finot: So I’m sure many on the call are familiar with these concepts, but that’s where it shook out in 25.

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Parker Finot: I do want to mention that chart in the upper right hand, talking about tax advantage. One key delineation in that if you’re a buyer, you are primarily going to be purchasing goodwill or stock, membership interest, etc. So while both of those things say that they’re seller advantaged.

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Parker Finot: You as a buyer will need to buy one. One, the asset generally will be more favorable than the stock, unless there are certain special tax strategies or elections available, which, of course, we consult with our clients on. So I just want to highlight that for you. It’s not as if there’s no good outcome for the key piece of business that you’re buying, it’s just.

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David Grau: Right.

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Parker Finot: Relative for sellers there.

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David Grau: So… why don’t we shift gears, Parker, and let’s…

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David Grau: I don’t want to say wrap it up, because I do want to make sure we save time for your questions here, so we’ll hit two more quick slides, and just shift and talk about succession.

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David Grau: Because we’ve talked a lot about mergers and acquisitions, although we have a question about mergers. So we mostly just talked about sales and acquisitions. I’ll answer your question, Christopher, about the mergers when we get to the Q&A portion. So good reminder. But let’s talk about succession real quick, because that’s another huge component that the industry’s been making a ton of progress in.

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David Grau: I’ll let you tee it up, Parker, and then I’ll close it out.

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Parker Finot: Yeah, absolutely. So, myself and my team, we oversee the peer-to-peer transactions, the neutral, non-avocated transactions, right? Buyer and seller would like a third party to help them reach a deal, so that’s the primary focus of transaction advisory here at SRG, but we also do

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Parker Finot: manage and oversee all succession planning engagements. So, naturally, we have insights there, which, of course, we can talk about now.

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Parker Finot: So, I would say a couple things.

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Parker Finot: First and foremost, again, there’s additional capital available for these types of transactions. Of course, a part of that is that broker-dealer RAA type of instrument. Not only that, though, we continue to see those programs, those offerings evolve.

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Parker Finot: where maybe they would have a limitation on debt to equity or debt to value that they’re loaning. In other instances, they’re loaning. We’ve seen even higher, up to 100% of these transactions based on the specific parameters, so…

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Parker Finot: Again, just seeing more support for internal succession as far as capital’s concerned, which you’ll see in the stat there. The average plan duration has continued to tick up.

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Parker Finot: I would say, again, going back to averages versus medians and such, the average plan duration has ticked up by about a half a year in the last few years that we’ve reported, but there are plenty of engagements coming in that are more intentional, more proactive.

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Parker Finot: that do have longer tails on them, and so certainly we’re seeing more of those in the funnel. And then another point to make as well is just the average tranche size. In the past, I think folks think, well, you know, successors, they’re not going to have the ability to buy too much.

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Parker Finot: It’s gonna have to be smaller pieces over a longer time, which, of course.

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Parker Finot: can be helpful, but you see there the average tranche size coming in over 20%, plenty of more sizable purchases that we’re helping to facilitate and also seeing in those plans. So, that’s a bit for the numbers. Something else I would say, though, just in terms of

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Parker Finot: preparation for success, is the earlier you start on succession planning, the more options you have, the more flexibility you have. The later you start, the fewer options and less flexibility you have. We’ve certainly seen folks show up with 18 months, 24 months, looking to implement the entirety of a succession plan. Has… has it happened? Yes.

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Parker Finot: Are there fewer options to work with? Yes. So, certainly having a longer, you know, duration on the plan is very helpful. Another variation of that is sometimes we see folks that show up and say, yeah, for the last 4 or 5 years, we’ve talked about this, thought about it, gotten to a pretty good spot, and now we’re ready to implement the plan.

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Parker Finot: I would generally advise to at least consider starting the planning process earlier in that window, provided you feel that the successor or successor team is qualified, and you expect them to be viable options, in that, again, you have more flexibility, you have more insight into what lies ahead, it can tamp down on junior partners thinking, well, hey, I keep growing this, and it just keeps

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Parker Finot: getting more expensive. There are strategies to address that, or at least

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Parker Finot: concepts to help everyone feel comfortable with these trade-offs, so I would just advise getting started earlier, getting a plan in place with either more direct obligations or complete flexibility, but getting that planning done earlier, it’s going to produce even better results.

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David Grau: Yeah, right, you can almost never start too early. Zoom pros on me, it hates me today. Would you advance the slides for me, Parker, to the next one? So the last thing I’ll share here, and then we will wrap things up with our perspective for 26 and get to your questions.

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David Grau: A few last points on… I’ll say succession generically, but equity sharing more broadly is…

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David Grau: There’s definitely been an increased focus on the entity structure, which is the least sexy part of succession, mergers, or acquisitions, but it’s coming up in a pretty big way. I think just as firms grow in complexity, number of partners, or the potential for more partners.

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David Grau: And also, it’s still saying, well, got you here, I won’t get you there, right? You know, they’ve got an LLC or S-Corp they set up when they first started 15 years ago, and they’re now at…

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David Grau: 500 million, a billion AUM, we need to upgrade and improve the governance structure as part of that process. So, that’s happening a lot more. We’ve also seen a major reduction in S-Corps.

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David Grau: and again, the work that Parker does on succession planning, the work our merger team does.

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David Grau: If you’re sitting here listening today, and you’re an S-Corp, or you’re an LLC taxed as an S-Corp, and you’re in growth mode, there’s a better answer. So, reach out to us, talk to your CPA,

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David Grau: But there’s been a major trend towards shifting away from S-Corps, and there’s a very good reason as to why. Founders are also sharing equity earlier, which, again, we saw in the tax stat that Parker put up

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David Grau: Previously, I suspect that’s also partly due to more robust entity structures, you get more tools in your proverbial toolbox, you’ve got voting, non-vote, you have a lot of different ways

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David Grau: You can share equity.

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David Grau: Well, that’s gonna make me much more liberal with it.

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David Grau: as opposed to having one share class, and if I share equity with Parker, he gets voting, he gets profits, he gets value rights. I’m gonna be really stingy with that, right? That’s the founder’s shares.

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David Grau: So that’s been changing, the other thing I would note here is the strategies for doing

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David Grau: succession planning have not really changed, right? You’ve got leveraged buyouts, where it’s fewer, larger purchases, financed by a third party.

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David Grau: Works great. You got the profit recycling that still works really well, where you do a bunch of smaller trunks that are seller-financed.

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David Grau: By seller finance, I mean it’s using the profits that are required to pay for the note over time. And then you have the shared growth model, where they earn a stake in the appreciated value over the next couple of years. These all still work fantastic. The noteworthy item here is on the far left, and it’s the entry point

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David Grau: To the succession plan, and that is there’s a lot more synthetic or phantom equity plans that our team is setting up, and that we’re just seeing sort of industry-wide, where that was reserved for the biggest, most complicated firms up until a couple of years ago.

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David Grau: Now, a lot of firms are leaning into phantom Synthetic equity as a way to let the next generation start to accrue a little bit of a balance so that when they do finally get invited to the big kids table.

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David Grau: to buy in.

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David Grau: they’ve got a little bit of a down payment or a discount that can be applied. It sort of helps grease the wheels a lot. It’s also a great retention tool, because it’s phantom equity, and if they leave, before they realize the value of it, it goes up in smoke.

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David Grau: So, let’s hit the last slide real quick, Parker, and then get to some of the questions. And I’ll just run through these, four points that we had here, and then we’ll hit the questions. So…

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David Grau: Number one, on the topic of value, sellers are definitely… and I won’t say it’s a universal truth.

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David Grau: Because there’s probably somebody out there that it doesn’t apply to, but I haven’t met them yet.

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David Grau: They’re prioritizing value over the terms. And you will… I say this from the perspective of, if you’re a buyer, this is useful intel to A know, but also B, fair doubt with the seller that you’re talking to. But if you’re a seller, see if this rings true with you.

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David Grau: We’re seeing it in the data. Historically, it was fit. That was the number one priority. It was fit, then price, then terms, and in that order, pretty much every single time, to the point where we had listings that our team would work on, where they would pass on the highest offer, take the second or third best offer, because that was the best fit for their clients and their team.

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David Grau: Now, It’s definitely… the value is the most important factor.

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David Grau: And, to be fair, the values today are a lot higher than they were in the past, so that’s worth noting. But it definitely is also making succession planning internally a lot more challenging, right? If I think I can get 14 times on the outside market.

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David Grau: But the internal can only pay 8 or 9.

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David Grau: That puts me in a really tough spot.

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David Grau: I mentioned the operating agreements, or at least I mentioned the entities, and we’re seeing a lot more folks spending time on upgrading those things.

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David Grau: So they have a multi-member class entity that they can share equity in, they can efficiently merge practices in, they can easily do succession planning and get the full tax advantage from both buyer and seller perspective.

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David Grau: So, that’s happening in large part just due to the practices getting bigger. And then, last one here is deal volumes increasing. We’ve seen it, there’s other industry pundits that have published this, and I don’t think it’s gonna slow down anytime soon. I don’t know that we’re seeing, you know, kind of the quote-unquote silver tsunami that’s been written about.

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David Grau: But it’s a steady trend of consolidation, and I expect we’re going to see more of that in 2026. So, if inorganic growth was not on your radar.

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David Grau: Even though the multiples are high, with the right deal structure, I think it’s still worth having on your radar.

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David Grau: So, with that, let’s, let’s get to the questions. We had a bunch of them. I’m gonna rapid-fire a couple of these, and we’ll take them back and forth, Parker.

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David Grau: Let’s get started with a few easy ones.

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David Grau: one that is most relevant to what I just said, what type of entity structure are people moving towards?

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David Grau: It varies, right? We don’t want to over-engineer this, and we also don’t have some secret entity type that you guys have never heard of, right? I mean, there’s LLCs, there’s S-Corps, there’s LLCs, taxes, S-Corps, partnerships, there’s only a few flavors.

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David Grau: But if you can layer these things correctly, you can get all the benefits and flexibility of an LLC and the tax benefits of the S-Corp, but you just gotta be a little bit more intentional about it.

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David Grau: And again, it depends on your size to answer the question directly, but something we can certainly give a more specific answer offline, obviously.

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David Grau: Clawbacks, Parker. So, what’s… what’s a normal target for a clawback? When are people resetting these clawbacks? Like, when are they measuring? Can you share any more specificity around that?

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Parker Finot: Yeah, absolutely. And we actually… we didn’t have those stats in the deck, but as many on the call may know, we always publish an infographic following these presentations, which we’re going to have expanded statistics on, right? Obviously.

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Parker Finot: It’s 3 weeks out from the end of the year, so we hit the high-level, most impactful pieces, but then we continue to scour and layer in additional pieces, but with all that said, the general time frame on the clawbacks was just about a year. It came in slightly over. There’s a few instances where it’s coming in at 18 months, 2 years. Obviously, there’s some that are shorter, 6 months, but the data bore…

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Parker Finot: bore out to be about just over one year for that. And then the target was about 90%. Again, I… I don’t have it in front of me. We’re gonna publish that in that extended output there, but the retention threshold came in at about 90%, which is…

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Parker Finot: Really, in line with what would be considered standard in recent years.

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David Grau: Okay. You know, on a similar note, there’s a question just around more specificity on the lender holdback, and maybe even escrow, if you can touch on those too, because I know they’re simple if you’ve used them, but on the surface, I’m guessing people hear you say escrow, and they think.

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David Grau: How is that a tool for me?

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Parker Finot: yeah, so I guess we could start with escrow.

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Parker Finot: So, certain transactions will use the escrow for the good faith or earnest money payment, right? When we’ve got certain activities that need to occur between signing and closing, right? We need to enter the transaction. Not all… not every transaction needs that, that disparity, or… or there… the actions that are being taken are…

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Parker Finot: it couldn’t be unwound, right? It’s not as if there would be any damaging effect if…

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Parker Finot: for some reason, the deal didn’t go through at that point. But those that do have those interim steps that need to be taken, you know, you’re gonna have that earnest money, good faith deposit, paid at signing. That’s where that escrow can certainly be useful. But outside of that, the more common or typical usage is for the adjustment clause. Other than tax structuring for sellers, sometimes they like to

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Parker Finot: you know, receive the proceeds at a later date, but they don’t want to deal with the hassle of the seller finance note component. Same is true just in general for the adjustment, right? The escrow nullifies the debt security and all the sort of headaches that come with that with seller financing by saying, you know, those dollars have already been funded, they’re in a defined account. We’ve got a defined or dedicated escrow agent.

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Parker Finot: that’s overseeing those dollars, escrow firm. So, that’s typically where those are used. The lender holdback is, like I mentioned before.

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Parker Finot: approval for the entirety of the purchase, but for adjustment or tax structuring, we’re looking to sequence some of those payments out into the future.

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Parker Finot: that’s where, again, it can get a little convoluted in the sense that it’s typically represented by a seller finance note, being that the lender may have approved the dollars to be funded, but they haven’t been funded yet, they haven’t been paid. So, at the end of the day, a buyer owes seller those dollars, so it materializes as a seller note. A lot of times, the interest on that seller note is lower than the cost that the lender’s charging, so you get a little bit

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Parker Finot: a differential there. Again, there’s some more details to it, but that’s the high-level summary.

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David Grau: Yeah, and to give a real-life example of the escrow, so I buy Parker’s business, I want a retention clause, I borrow all the money from the industry lender, I give him 70%, I put 30% into escrow, and it’s released.

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David Grau: For example, when he hits 90% retention and delivery of the clients, or it’s released in a year if we hit 90%. It’s a really good way to create an incentive. You deal with the bank one time, to Parker’s point. So, lots of ways escrow could be used, but that’s probably the most strategic way that it gets used.

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David Grau: David had a question on, should founders’ Partners Compensation be excluded as an expense when calculating EBITDA? So, good question, and it’s an important one, just for some back-of-the-envelope math. So…

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David Grau: If you’re calculating and estimating EBITDA, that should include reasonable owners’ compensation. Now, again, if you pay yourself a million dollars on a W-2,

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David Grau: That might be a little rich. I know how valuable you all are to your organizations, but it’s probably going to be something smaller than that, but we include reasonable owner’s compensation, assuming you’re an active owner in the business, and most folks are, to get to a true EBITDA number. If we pull it out.

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David Grau: It’s fine, but that’s EBOC, and if we do EBOC, then it’s just a different multiple, right? As you move up and down the profit and loss statement. So, for planning purposes, succession planning purposes, we should definitely be including reasonable compensation for you as a partner.

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David Grau: Or at least for the partners, right? Some partners may be more leadership-oriented and have a fixed salary. Others may still be more client-facing.

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David Grau: Just tenured enough that they’re a partner, but they should still have compensation baked in. Ownership is separate.

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Parker Finot: And I want to piggyback on that as well to say the example you gave is maybe bringing that comp down, right, in line with what we considered market, but a lot of

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Parker Finot: times, right, it’s maybe on the lower end, right? We’re looking to, again, take advantage of certain tax benefits, and so we say, well, you’re not really worth X, you’re worth Y, right? If we’re going to hire someone to replace you, that would probably look more like, you know, this amount of comp, so that would be that normalization that happens there. Outside of that, another question here from Kevin basically just says, you know, why would a buyer pay more?

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Parker Finot: For a practice transitioning from an outside firm.

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Parker Finot: Well, I know we’ve talked about some reduction in the number of buyers out there, but I’m pretty sure we could all agree that 61 is still plenty to compete against on those

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Parker Finot: open market transactions. I think that was another question. Where is that number coming from? That’s based on any of the open market transactions that we have access to. Those always compile how many qualified buyers solicited interest, how many submitted offers, how many, or what the duration was from the time of listing to the time of close, so that’s where those figures are coming for, from the buyers, is the open

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Parker Finot: market scenarios, but why would you pay more? There’s still competition, right? Many buyers will happily step forward and pay a little bit of a premium to secure the business, because a big portion of their strategy is acquisition, and the worst thing for them is sitting on their hands for a year or two with nothing to buy. They’re ready for the next one. So, if you have an opportunity that you’re able to…

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Parker Finot: you know, lift out of another ecosystem, you just have to pay a little bit more for it. A lot of folks will take that trade.

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David Grau: Yeah.

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David Grau: And I’d be remiss if I didn’t answer Mark’s question here at the very beginning of my list, and that is, our valuation is very different between the two strategies, 10 times EBITDA, 3.2 times recurring revenue.

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David Grau: Is that common? Obviously, seller wants higher, buyer wants lower, so yeah, my valuation team would kill me if I didn’t answer this. So…

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David Grau: That isn’t uncommon. It also depends on what you’re selling, who you’re selling it to, right? If Parker’s on my team, he works with me, he’s gonna be buying into the firm.

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David Grau: he could give a shit about my top-line revenue, right? That’s not what he’s buying into. He’s buying into the profitability of this organization, and if those numbers are very different, well, cool, but one doesn’t even matter.

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David Grau: As opposed to…

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David Grau: I run a million dollar book of business. It’s a great practice. Lean, mean, efficient lifestyle business.

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David Grau: And I come to Parker and say, well.

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David Grau: I have a million in revenue, $900,000 in profits. I got a virtual office, and my wife works for me part-time. So, 10 times $900,000 in profits

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David Grau: I could retire tomorrow. That math doesn’t track either, right? So it’s not like you would pick one versus the other, it’s interesting math to compare and contrast.

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David Grau: But if you’re large enough, or you’ve got a business, or you’re selling internally, top line doesn’t matter. If you’re small enough that no one’s gonna buy your expenses and infrastructure anyway.

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David Grau: then earnings don’t matter. So, right tool for the right job, but not uncommon you get different answers. I literally just had

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David Grau: I won’t say an argument, but a interesting conversation with a client yesterday about this, where they had 10 million in top-line revenue.

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David Grau: As a fee-only RIA,

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David Grau: And their valuation came back just shy of $10 million. And they thought we were off our rocker. Well, all we had to do is go back to the financials and look at the fact that they have just shy of a million dollars in profits at the end of the year, and that’s the new high watermark for that organization.

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David Grau: You can explain until you’re blue in the face about how you’re built for the future and can support all the growth, and that’s fantastic, but in your current earnings cycle, you’re down here.

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David Grau: And 10 times is a great multiple for a financial services business. Unfortunately, 10 times a million dollars is still only 10 million.

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David Grau: So, it’s worth understanding and benchmarking these things, because earnings is a lot more complicated than multiplying a number on top-line revenue, right?

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David Grau: Any other questions, Parker, you had cherry-picked? I know we’re effectively out of time, but we still have some folks on, and I’ll make sure we can get some of these questions answered, because there’s some good ones in here.

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Parker Finot: Yeah, to your point, there’s a lot of good ones, so many that it’s difficult to choose. I’m still cycling through them just to see what would produce the most impact for a broad audience here.

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Parker Finot: I mean, it’s an easy one from John on how many deals do you think happen that no one sees?

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David Grau: I mean, a ton. There’s a ton of deals, frankly. When I see the publications from some of the investment bankers talking about 180 transactions took place this year.

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David Grau: there’s a whole bunch of transactions that we worked on that they don’t know about, and there’s a whole bunch of transactions that other folks worked on. Attorneys, our peer organizations. So, I mean, and there are hundreds of transactions taking place every single year that no one knows about. They’re not big enough to make the headlines.

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David Grau: But there’s a lot of deal activity.

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Parker Finot: Yep.

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Parker Finot: Another one here, just to kind of broaden the focus, is from Christopher. He asks, what about mergers? How do these transactions work?

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Parker Finot: Good question. We have a dedicated team that specializes in mergers because they are different than a standard purchase or sale or internal sale. There is the financial and tax matters, there is the legal, as it relates to existing legal entities that are likely in existence. If you’re looking to merge, you’ve

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Parker Finot: generally got an enterprise underneath of you. There is the compensation perspective, hey, we’ve always thought about comp this way, they’ve always thought about comp this way, we’re both going to have to operate under the same umbrella in a way that makes sense. There is, just the integration and logistics of it all. And then not only that.

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Parker Finot: a lot of times what we tend to see is, in combination with mergers, either right before or right after, other folks are looking to upsize or downsize their interests, so…

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Parker Finot: there’s a lot of layers that go into the mergers, and you may have seen on LinkedIn, we’ve certainly supported some pretty sizable mergers in recent years, so in line with that trend we’ve seen with consolidation and business combinations, we’re certainly supporting more mergers directly here at SRG as well.

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David Grau: Yeah, I’m glad you pointed that one out, because you’re right, we’ve always said we’re an M&A firm, but I would say the first 10 years in business, we’d do a merger or two, like a true merger, right? A statutory reorganization, value A, value B, bring them together in a new entity, somebody comes out the other side.

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David Grau: But there’s only a handful of those that really were mergers. Like, most of them, Parker and I merged, but really, I just bought him, and he doesn’t go away after closing. It’s not really a merger.

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David Grau: That looks like one to the clients. There is a lot.

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David Grau: of merger activity happening now, so it’s a good question, and something I expect we’re probably going to see more of, merging to achieve some higher levels of scale and efficiency.

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Parker Finot: Yep.

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David Grau: Well, folks, I hate to say it, but that is probably about all the time we have. We’re already 10 minutes over, and you guys are rock stars for sticking with us. Questions we didn’t get to now, we will make sure we follow up with you separately. If you ask anonymously, you’re SOL, but if you put your name there, we’ll make sure we track you down and get you an answer on this stuff. Again, Nicole, Craig, Sabrina will be reaching out to you, either via email or a call, if you want a copy of the deck.

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David Grau: Can’t find the recording.

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David Grau: Just let them know

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David Grau: We hope you have a great 2026, and that you can join us for some of the upcoming webinars here in Q1. Thanks, guys!