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Robust sales market seen for RIAs

The RIA sales window is still very much open.

Market volatility at the end of 2018 didn’t significantly impact advisor M&A activity in January and February, according to Scott Slater, vice president of practice management and consulting for Fidelity Clearing & Custody Solutions.

“The M&A market remains pretty healthy and was not overly distracted by market activity in November and December, as might have been expected,” Slater says. “It’s still a strong sellers’ market.”

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There have been 20 RIA transactions through February 28 representing around $11 billion in AUM, according to Fidelity’s most recent Wealth Management M&A Transaction Report. That’s in addition to the blockbuster $77 billion IBD deal in late February that saw Warburg Pincus take a majority stake in Kestra Financial.

So far this year, the RIA M&A market leaders who led the pack in 2018 have maintained their dominance, including well-capitalized large firms such as Mercer Advisors, Mariner Wealth Advisors and RIAs affiliated with Focus Financial Partners.

"Strategic acquirers and consolidators continue their dominance of the RIA M&A space,” says Echelon managing director Carolyn Armitage.

Those buyers are expected to keep their checkbooks open, but Slater urges RIA owners thinking of selling not to delay the sales process much longer.

“If you wait too long, the big players are increasingly pulling away and as their value increases, the value of smaller firms can’t keep pace,” he cautions.
The transactions in January and February followed last year’s all-time high of 181 deals, according to Echelon Partners 2018 RIA M&A Deal Report.

Fueled in large part by investments from private equity firms, those deals represented a nearly 16% compound annual growth rate in M&A activity since the business cycle trough in 2009, according to Echelon.

Citing “a record amount of dry powder cash available for investment,” Echelon managing director Carolyn Armitage notes that “strategic acquirers and consolidators continue their dominance of the RIA M&A space.”

Advisory owners thinking of selling into this red hot market should be careful not to “look at their own circumstances in isolation,” Slater says. “An RIA founder may think he’s OK for the next three to five years, but trends in the broader market may have an impact on a sale that is beyond just what’s going on in an individual firm.”

One RIA owner who completed an M&A transaction last month advised buyers and sellers to set up a formal leadership integration team to minimize disruption and ensure a smooth transition.

Personnel issues, not money, are usually the biggest challenges in the sale of an advisory firm, says Brett Bernstein, CEO of XML Financial Group of Rockville, Maryland, which acquired Lara, May & Associates, another suburban Washington, D.C. firm in February.

“It’s the day-to-day things that can be problematic,” Bernstein says. “You want to be sure there’s clear communication between the two firms and the employees and the new owners. You’re going to find out who isn’t happy and why and you want to fix it.”

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