Guides / Deal structure
Buying a $50M AUM book: an example deal structure
A fully worked, illustrative structure for a $50M AUA Canadian book: how the price is built, how the payment is split, what the debt service does to cash flow, and what happens when markets fall 15% or retention misses the test.
Key takeaways
- The worked example: $50M AUA at 55 basis points gives $275,000 of recurring revenue, priced at 2.8x for $770,000.
- Structure used here is 75% cash at closing, 15% vendor take back over five years, 10% holdback for 18 months.
- Annual debt service of roughly $105,700 against $165,000 of cash flow after grid payout and servicing costs gives a coverage ratio of 1.56x.
- Down payments in the realized deal set ran from 25% to 100% with a median of 90%, so 75% cash at close sits below the realized median but well above Canadian practitioner guidance of 25% to 50%.
- A 15% market decline before closing compresses coverage from 1.56x to 1.25x if the price is not renegotiated; one real deal was cut from 3.14x to 2.82x for exactly this reason.
- A retention miss of six percentage points against an 88% test claws back $46,200 of the $77,000 holdback on the multiple-based formula used here.
A $50M AUA Canadian book producing $275,000 of recurring revenue prices at around $770,000 on a 2.8x multiple. Split it 75% cash at closing, 15% vendor take back and a 10% holdback for 18 months, finance the cash portion with a $450,000 bank loan over seven years at 6%, and you are carrying roughly $105,700 of annual debt service against about $165,000 of cash flow after grid payout and incremental servicing costs. That is a coverage ratio of 1.56x and a payback on price of under five years.
Every number in that paragraph is an assumption. None of it is a quote, a projection, or a valuation of any real book. The multiples and structural terms come from published Canadian and US transactions, but the book is constructed to make the arithmetic visible. Your own price comes out of diligence on a real set of books, and your financing terms come from your own lender.
What follows is the full build: assumptions, price, structure, cash flow, coverage, payback, and then the same deal under two stress cases that both have real precedents behind them.
The assumptions
State them explicitly, because a deal model that hides its assumptions is worthless in a negotiation.
| Input | Assumption | Why this number |
|---|---|---|
| Assets under administration | $50,000,000 | Roughly a third of the average Canadian brokerage advisor, who holds $149.0M AUM across 300 client households (Investment Executive Brokerage Report Card). |
| Recurring revenue yield | 55 basis points | Mid-point of a 50 to 60 bps working range. On $50M that is $275,000, inside the $250,000 to $300,000 band the range implies. |
| Recurring revenue | $275,000 | The denominator for the price. Non-recurring revenue is excluded entirely. |
| Recurring share of total revenue | 92% | High but not implausible. Canadian recurring revenue is worth roughly twice non-recurring per dollar, averaging 2.31x against 1.08x (Advisor.ca). |
| Households | 180 | About $278,000 of assets per household. Well above the level where a book stops being serviceable: $50M across 2,000 clients is described as not worth much (Investment Executive). |
| Concentration | Largest client 4% of assets, top 10 at 22% | Deliberately unremarkable. The one Canadian deal that priced at 1.0x had a single client at 20% of assets (Globe Advisor). |
| Grid payout to the buyer | 80% | The dealer keeps 20%. Set this to your actual grid, since it drives every cash flow line below. |
| Incremental servicing cost | $55,000 per year | Part-time administrative support, software seats, additional E and O and compliance time attributable to the acquired households. |
Working the price
The defensible published range for open-market Canadian recurring revenue is 1.8x to 3.5x. Within that, the five Canadian realized deals with a disclosed multiple ran 1.00x to 3.25x with a median of 3.00x, and the two buyers at the top both described 2.5x as the industry standard they were exceeding (Globe Advisor).
This book is good but not exceptional: high recurring mix and clean concentration argue up, a mid-size household base and a seller who will stay only twelve months argue against the top of the range. Take 2.8x.
2.8 multiplied by $275,000 gives a purchase price of $770,000. Cross-check against the asset denominator: that is 1.54% of AUA, comfortably inside the 1% to 2% of assets under administration that is the stated Canadian rule of thumb (George Hartman of Market Logics in Investment Executive), and close to the 1.75% of AUM adjusted for retention that the one Canadian deal priced on assets actually settled at (Investment Executive cover story).
The structure
Down payment conventions vary enormously in the realized data. Across the deals with a disclosed figure, down payments ran from 25% to 100% with a median of 90%. At one end, Samuel Lichtman paid 25% up front with the remaining 75% over twelve monthly instalments on a small, concentrated book (Globe Advisor). At the other, one Canadian buyer paid 100% upfront for a 60-household book at 3.25x (Globe Advisor). Canadian practitioner guidance, by contrast, puts the typical down payment at 25% to 50% with the balance paid from earnings via a vendor take back note (Investment Executive).
The structure below sits between those poles: more cash than the practitioner guidance, less than the realized median.
| Term | Amount or value | Note |
|---|---|---|
| Purchase price | $770,000 | 2.8x recurring revenue of $275,000 |
| Cash at closing | $577,500 (75%) | Funded by a $450,000 bank loan plus $127,500 of buyer equity |
| Vendor take back note | $115,500 (15%) | Five-year amortization at 6%. SRG's 2024 closed deals averaged 5.94 years and 4.9% on seller notes (SRG) |
| Holdback | $77,000 (10%) | Held 18 months, mirroring the realized Canadian term (Globe Advisor) |
| Retention test | 88% of acquired recurring revenue at month 18 | 88.00% measured one year after closing was the average target across 176 US closed deals (SRG) |
| Excluded withdrawals | Lifestyle withdrawals, RRIF minimums, death, and transfers driven by client relocation | The carve-out one Canadian buyer actually negotiated: withdrawals for lifestyle reasons were excluded from the holdback test |
| Seller transition | 12 months, paid, with defined client introduction obligations | Canadian guidance puts transition at six months to five years (Investment Executive) |
| Bank loan | $450,000, seven years, 6% | 1.6x recurring revenue. PPC Loan's stated lendable limit in the US is around 2x combined recurring revenue (Kitces) |
Debt service against cash flow
The bank loan of $450,000 amortized over seven years at 6% costs about $6,574 a month, or $78,900 a year. The vendor take back of $115,500 over five years at 6% costs about $2,233 a month, or $26,800 a year. Total annual debt service is roughly $105,700.
Now the cash flow. Recurring revenue of $275,000 at an 80% grid gives $220,000 to the buyer. Take off $55,000 of incremental servicing cost and you have $165,000 of cash flow available for debt service, before any compensation to the buyer for the additional work.
| Line | Base case |
|---|---|
| Recurring revenue acquired | $275,000 |
| Less dealer grid at 20% | ($55,000) |
| Revenue after grid payout | $220,000 |
| Less incremental servicing cost | ($55,000) |
| Cash flow available for debt service | $165,000 |
| Annual debt service, bank loan plus vendor note | ($105,700) |
| Cash flow after debt service | $59,300 |
| Coverage ratio | 1.56x |
| Payback on purchase price at pre-debt cash flow | 4.7 years |
| Payback on the $127,500 of buyer equity | 2.1 years |
A 1.56x coverage ratio is a real cushion, and it needs to be, because the revenue line is a market-linked asset financed with a fixed obligation. The $59,300 left over is not profit. It is the buffer that absorbs attrition, fee compression and the market, and it is what pays you for taking on 180 more households.
Stress case one: a 15% market decline before closing
This is not hypothetical. Lovett Advisors, a Delaware RIA, agreed a sale at 3.14x revenue and 7.00x earnings, and the deal was renegotiated down to 2.82x revenue and 5.75x earnings purely because of the February and March 2020 market drop between offer and close (Succession Resource Group). That is a 10.2% cut to the multiple, on top of whatever the revenue itself had already done. Market timing alone moved the price more than most diligence findings would.
Apply the same shock here. A 15% decline takes AUA to $42.5M and recurring revenue to $233,750 at the same 55 basis points. Three outcomes are possible, and the difference between them is entirely a matter of what your purchase agreement says.
| Scenario | Price | Effective multiple | Cash flow for debt service | Coverage |
|---|---|---|---|---|
| Base case, no decline | $770,000 | 2.80x | $165,000 | 1.56x |
| Price fixed, no adjustment clause | $770,000 | 3.29x on post-decline revenue | $132,000 | 1.25x |
| Price recalculated at 2.8x on post-decline revenue | $654,500 | 2.80x | $132,000 | Above 1.25x once the loan is resized to the lower price |
| Multiple also cut 10.2%, mirroring the Lovett renegotiation | $587,600 | 2.51x | $132,000 | Higher again on a further resized loan |
Notice which line hurts. If the price is fixed and the market falls, your coverage drops from 1.56x to 1.25x and you have quietly paid 3.29x for a book you priced at 2.8x. The buyer's protections are a revenue-based adjustment clause tied to a measurement date close to closing, or a shorter gap between signing and closing. The seller's counter is that they should not be penalised for an index. Twyla Hardham took the seller's side of that argument voluntarily and honoured the agreed price despite a market decline that shrank the book's assets (Globe Advisor), which is one way to buy goodwill from a seller you still need for twelve months of introductions.
Stress case two: retention misses the test
The holdback is $77,000 and the test is 88% of the acquired recurring revenue measured at month 18, with lifestyle withdrawals excluded. Assume retention comes in at 82%, six percentage points light.
The formula matters more than the shortfall. Two common approaches:
- Multiple-based deduction. The P&C brokerage convention, which carries over cleanly, is that the deduction equals the lost accounts' historical commission multiplied by the purchase multiple (Borlak). Here, revenue lost below the test is 6% of $275,000, or $16,500. Multiplied by 2.8, the deduction is $46,200, leaving $30,800 of the holdback released to the seller.
- Pro rata on price. The shortfall percentage applied to the purchase price: 6% of $770,000 is $46,200 in this case, which happens to match, because the price is the multiple times the revenue. The two formulas only diverge once the holdback caps the deduction or the test is measured on assets rather than revenue.
The cliff version is the one to avoid signing. US practice includes formulas where missing a 95% retention test forfeits the entire retention payment (Kitces). A cliff turns a 1% miss into a total loss and is the single most reliable way to end up in a dispute with the person whose introductions you still need.
Note also what the holdback does not fix. Losing 18% of the revenue costs you $49,500 a year in perpetuity, against a one-time $46,200 recovery. Your cash flow for debt service falls to about $125,400 and coverage falls to 1.19x. A holdback is a partial rebate, not insurance.
Financing reality in Canada
The loan assumed above is the part most likely to differ from your actual experience. Canadian acquisition lending is thin and channel-dependent: banks generally want more than $1M of EBITDA, CWB Maxium lends above $1M, BDC covers below that, specialty lenders charge 30% to 100% higher rates, deals take twelve to eighteen months, and dealer financing is often repayable in full if the advisor changes platforms (Acquatio). Some MGA channels have their own programs: Financial Horizons guarantees loans to Scotiabank for Elite advisors (Financial Horizons), and Twyla Hardham financed her acquisition through Manulife Bank.
The last clause in the Acquatio list deserves attention: if your dealer financed the purchase and you later change platforms, the loan can come due immediately. That converts a seven-year obligation into a lump sum at the worst possible moment.
Run your own numbers against a real book before you take a structure like this to a lender. The free estimate gives you the price range, the holding-level report goes deeper on the revenue composition that drives it, and the financing guide covers what lenders actually ask for. If you are still looking for the book itself, the anonymized listings are the place to start. None of it is an appraisal, a projection, or advice on your transaction.
Common questions
How much recurring revenue does a $50M book produce?
It depends entirely on the fee schedule and product mix. A common working assumption for a Canadian fee-based or trailer-based book is 50 to 60 basis points of recurring revenue on assets, which puts a $50M book at roughly $250,000 to $300,000. Never assume it. Ask for the trailing twelve months of revenue by line and by client, and price what you can verify.
What coverage ratio should I target on an advisor book acquisition?
Your lender sets that, not a formula on a website. In the worked example here, cash flow after grid payout and incremental servicing costs covers annual debt service 1.56 times, and that falls to about 1.25 times under a 15% market decline. Model the stress case before you sign, because the asset you are financing reprices with the market.
Is a 10% holdback normal in Canada?
It is the most commonly reported Canadian term. One Canadian buyer negotiated a 10% holdback over 18 months with lifestyle withdrawals excluded from the test, and a repeat buyer described 90% upfront with a 10% retention holdback measured after one or two years as his standard structure. Holdback terms are contractual and need your own lawyer.
Are these numbers a valuation or a quote?
Neither. Every figure in this article is an illustrative assumption chosen to show how the arithmetic works. The multiples and deal terms are drawn from published transactions, but the book itself is invented. Your price comes from diligence on a real book, and your financing terms come from your own lender.