If June is any indication of things to come, merger and acquisition activity in the RIA space might be back on track following a coronavirus-related three-month stall.
M&A data tracked by Fidelity Clearing & Custody Solutions shows 14 deals in June, with combined assets under management of $20.6 billion, making it the best month of the year for deals so far.
The June numbers edged out January, which registered 13 deals with total AUM of $18.9 billion.
“The deals came back in June faster than many people expected, and the M&A activity in the wealth management space has come back faster than other industries,” said Scott Slater, vice president of practice management at Fidelity’s custodian business.
February activity, including seven deals and $9.9 billion in AUM, fell off slightly from January, but the asset levels for those two months represented a 158% increase over the same period in 2019.
That early part of the year, before the global economy was virtually shut down by the Covid-19 pandemic, showed signs of another record-setting year for RIA consolidation.
The June deal volume breaks a three-month string where March and April logged just three deals each, and May registered four deals. The AUM for those three months ranged between $1.2 billion and $1.5 billion.
Echelon Partners, which tracks deal activity by a different set of metrics than Fidelity and doesn’t break down deal activity by month, is also showing signs of a stronger second half.
The Echelon report stated that while total deal volume in the second quarter dropped by 20% from the first quarter and by 34% from the second quarter of 2019, the size of the firms involved in the most recent M&A activity have grown significantly.
“There was a flurry of activity down the home stretch of the quarter, with nine deals announced in the last 11 days of June,” the Echelon report states.
Echelon’s data counts 35 deals during the three-month period through June, which is down from 46 deals in the first quarter and represents the lowest month since the third quarter of 2017 also finished with 35 deals.
But, despite the declining deal volume attributed to the pandemic, Echelon reports that average deal size is climbing and is indicative of strong momentum going into the second half.
The 2020 average deal AUM of $1.5 billion is the highest on record at Echelon, which reports that 46% of all announced transactions involved an acquisition target with at least $1 billion under management.
Last year, only 29% of acquisition targets had more than $1 billion under management.
“The quarter’s larger deal sizes indicate that while M&A activity may have slowed for smaller firms during the market downturn, larger firms with dedicated leadership, corporate development and integration teams are continuing their consolidation efforts,” the Echelon report states.
Slater of Fidelity said it’s too soon to speculate on whether there is enough momentum and pending deals to push 2020 deal volume ahead of the 2019, but most analysts believe the second half of this year will surpass the second half of last year.
“Independent wealth management is already an attractive target,” Slater said, adding that deal activity is driven by the need for succession plans by owners and the “demand is there for the basic offering they’re providing.”
“The stability of the industry and the stability of the basic revenue stream is significant,” he added.
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