How long can the bull market for RIAs last?
Another year in the RIA market, another M&A record. Is there an end in sight?
Industry executives don’t expect the M&A frenzy to cool off anytime soon — citing strong demand from quality buyers, high valuations, availability of capital at low interest rates, swelling client assets and the success of M&A deals over the last decade.
Echelon Partners, DeVoe & Co., FA Insights and Fidelity all reported record highs in M&A deal volume for 2019.
Echelon recorded 203 acquisitions, a 12% increase from the 181 deals the consultancy and investment banking firm reported in 2018. The firm’s annual Deal Report notes the “imprecise science” of tracking deals for advisory firms, estimating that as many as two-thirds of RIA transactions for firms with under $100 million are not reported at all.
The high volume of deals comes amid a backdrop of mostly successful stories,explains Dan Seivert, CEO of Echelon Partners.
“You haven’t heard about many breakups or lawsuits over M&A deals that went bad,” Seivert says “That wasn’t the case before 2008 and not something you see as much in other industries. The preponderance of good stories for RIAs that have been bought, including high profits and impressive growth, has definitely increased the confidence of buyers.”
Indeed, acquirers of advisory firms have realized “really nice returns,” says Pete Dorsey, national managing director, sales and relationship management for TD Ameritrade Institutional.
“The acquisitions have proved to be just what the buyers wanted, so there’s every reason to believe 2020 will be just as active as last year,” Dorsey says. “The supply of sellers hasn’t quite outstripped the demand of buyers.”
There’s not a lot of downside to getting bigger.
Size, scale and large buyers are also expected to continue to drive the market.
Echelon reports 57 M&A transactions for wealth management firms with over $1 billion in assets in 2019, a nearly 80% jump from 2018.
“There’s not a lot of downside to getting bigger,” says Bruce Cameron, partner at M&A investment banking firm Berkshire Global Advisors.
Private equity investors, fast-growing RIAs and large financial institutions continued to dominate the M&A market. RIAs backed by Focus Financial Partners and Wealth Partners Capital Group — which together accounted for over 30 transactions — were the most active buyers.
Other large acquirers included Mercer Advisors (11 deals); Wealth Enhancement Group (6); Mariner Wealth Advisors (5); Captrust (4) and Hightower Advisors (4).
Berkshire is seeing “a lot of organizations looking hard at the wealth management business,” Cameron says. “There are many styles of aggregation, and the market is as active as we’ve ever seen it.”
DeVoe & Co., which is set to release its 2019 M&A report shortly, expects to see a continuation of 30-plus transactions per quarter in 2020.
Record high valuations, more capital options and “the growing power of mega-RIA firms” could drive deal activity past 40 transactions in a quarter this year, says David DeVoe, managing partner of the eponymous consulting firm.
Will any [Wall Street firm] follow Goldman Sachs' lead in 2020?
DeVoe points out that there have already been 12 transactions in the first half of January, compared to six at the same time last year.
Cerity Partners has made the biggest splash to date, acquiring EMM Wealth, a New York City-based wealth management firm with $2.3 billion in AUM and Sullivan & Serwitz, a Silicon Valley wealth manager, whose SEC Form ADV does not list its assets. Cerity says the firm has around $1 billion in AUM.
A New York-based wealth manager that now has approximately $26 billion in AUM, Cerity was known as HPM Partners until last year. Private equity firm Lightyear Capital bought Emigrant Bank’s majority stake in HPM in 2018.
Headed by CEO Kurt Miscinski, Cerity made one of 2019’s largest deals, buying Blue Prarie Group, a Chicago-based retirement plan advisor with $11 billion in assets.
Goldman Sach's $750 million acquisition of United Capital, which has around $25 billion in AUM, was among the largest deals in 2019 for a retail RIA.
"Now that Wall Street has dipped its toe in the RIA waters, a big question for 2020 is whether anyone will follow their lead," says TD Ameritrade's Dorsey.