Despite the economic drag of the global pandemic, 2020 was a banner year for consolidation in the wealth management space, and nobody seems to see an end to that pace anytime soon.
“Right now, it is both a buyers’ and a sellers’ market because the deals are favorable on both sides,” said Mark Bruno, managing director at Echelon Partners.
Whil,e deals involving breakaway brokers fell off their 2019 record-level pace in 2020, the appetite for registered investment advisers bounced back from a slowdown in March to finish the year with a record 205 deals, according to Echelon.
That’s up slightly from 203 deals in 2019 and continues a steady upward trend from 60 acquisitions in 2012.
Barring another global catastrophe, Bruno sees no reason the pace of RIA deals won’t continue to climb over the next several years.
“Markets are still strong, and there’s still a growing appreciation for the global wealth management space,” he said. “The RIA segment is not a secret anymore. The industry, made up of about 30,000 small businesses, is still relatively young but has matured a lot over the last five years.”
Bruno cited Hightower, Focus Financial and Canada’s CI Financial as examples of the leaders among what he calls “professional buyers.”
“Their business models are now dependent on doing transactions in order to grow,” he said. “Those kinds of firms are responsible for a growing portion of the M&A activity, and the larger they become, the more they will do deals that are significantly larger.”
One thing the aggregators all seem to have in common is some form of outside capital, usually from private equity investors.
Bruno attributes the flood of PE money into the RIA space over the past several years to the evolution of the RIA space.
“Private equity firms have to make certain minimum investments, and 10 years ago you didn’t have as many wealth management firms with $10 billion under management,” he said. “Now there are more options, and PE firms are supporting the consolidation.”
For sellers, it has never been so good, according to Echelon, which shows the average firm acquired in 2020 had $1.9 billion under management, which compares to $1.5 billion in 2019. And more deals are being structured with the owners sticking around, as opposed to just selling and exiting the business.
“We’re still in an environment where the stock market could hit a new record every day, and RIA owners are generally benefiting from the acquisitions,” Bruno said. “A lot of the buyers are competing with each other and there are a limited number of high-quality larger firms out there.”
DeVoe & Co., which also tracks RIA M&A, but using different sets of metrics, showed similar odds-defying record-setting results for 2020.
DeVoe counted a record 159 deals last year, up from 132 in 2019, continuing a growth trend dating back to 2013, when there were just 36 deals.
The DeVoe report breaks down 2020 deal activity in phases, with a strong start to the year followed by a March lull as the pandemic was becoming a global reality, succeeded by a pickup that moved activity back to normal.
“The surge in activity has largely been driven by professionally managed firms with over $1 billion” in assets under management, the report states.
The surge is most evident when the DeVoe deal count is studied by quarter; there were a record 35 deals announced in the first three months of 2020, followed by 32 in the second quarter, a record 44 in the third quarter and a record 48 in the fourth quarter.
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