Bigger appears to be better when it comes to RIA mergers and acquisitions.

Large RIAs managing between $1 billion and $5 billion in assets sold in record numbers during the first quarter of the year, according to the Nuveen/DeVoe & Co. RIA Deal Book. While this segment usually accounts for 11% of total M&A transactions, to date it has comprised 21% of the transactions, nearly double the average.

Buyers included banks, consolidators, mega-RIAs and private equity firms.

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"Banks have also re-entered the space in a big way," says David DeVoe, managing partner and founder of DeVoe & Co.

Why the interest in large RIAs?

"Large private equity firms are beginning to implement their growth strategies," says David DeVoe, managing partner and founder of San Francisco-based M&A specialist DeVoe & Co. One good example, he notes, is the acquisition of Kanaly Trust, a Houston-based RIA with over $2 billion targeting ultrahigh-net-worth clients by Mercer Advisors, which is owned by the growth-minded private equity firm Genstar Capital.

BANKS ARE BACK
"Banks have also re-entered the space in a big way," DeVoe says. "They were dominant buyers before the financial crisis and now that they have paid off their TARP loans they're looking at large RIAs for the same reasons as before: The RIAs have attractive UHNW clients that they want to cross-sell banking services to, and they want to move banking customers to wealth management. That's the aspiration, but it's hard to execute."

He notes, for example, that Johnson Financial Group, a Milwaukee-based bank, bought Cleary Gull Advisors, an RIA with around $2.1 billion in assets also based in Milwaukee. And Mellon Bank, one of the country's largest, acquired Atherton Lane, a San Francisco-based wealth management firm with around $2.7 billion in assets.

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"RIAs have attractive UHNW clients that they want to cross-sell banking services to."

DeVoe also think the increased interest in large RIAs may also have benefited from a "psychological shift," where "buyers see their peers doing it, confirming that it's a good strategy."

INFLECTION POINT COMING?
Altogether, DeVoe & Co. recorded 33 transactions during the first quarter, four fewer deals than transpired during the same period a year ago, but about three times as many compared to the first quarters of 2013 and 2014.

The high interest levels "from an unusually diverse set of potential buyers, [may result in] another record year of activity," according to the Deal Book Report.

"With so many buyers, it’s a good time to be a seller," the reported concluded. "One can’t help but wonder, however, if there will eventually be an inflection point when the pool of buyers simply can’t keep up with the growing numbers of sellers."

Charles Paikert

Charles Paikert

Charles Paikert is a senior editor with Financial Planning, a SourceMedia publication.