Mergers and acquisitions among registered investment advisor firms are set for a record year following the strongest quarter on record for M&A, according to an analysis by Schwab Advisor Services, the RIA division of Charles Schwab.
The first quarter saw 24 acquisitions, according to Dave DeVoe, a managing director of strategic development for Schwab Advisor Services in San Francisco. A year earlier, there were 19 such deals.
RIA M&A has been on a tear for the past seven years, which is as long as DeVoe has been tracking the numbers. Starting at 20 transactions in 2003, M&A has increased exponentially since then to 24 in 2004, 52 in 2005, 58 in 2006, 81 in 2007 and 88 in 2008.
Last year, transactions dropped a bit to 71, but DeVoe thinks this is an anomaly due to the effect the floundering market was having on firm valuations and because advisors had more important things to think about.
“Many advisors walked away from deals on the table to take care of clients, which was the right thing to do,” he said.
Early signs of economic recovery are increasing RIA’s appetite for acquisition again. There are several reasons for this, not limited to principals’ advancing age (the average principal is 54 and 30% of principals are over 60); the size of the RIA market (there are over 10,000 firms registered with the Securities and Exchange Commission); continued private-equity interest in the sector that is driving the creation of large RIA holding companies; and growing sophistication of the principals themselves, who are looking to other firms for strategic acquisition, such as to plug holes in investment expertise.
All these reasons, plus the fact that a peak year of 88 deals isn’t much of a splash in a 10,000-firm industry, mean that there is plenty of opportunity for more deals, and DeVoe said that he expects growth at least for the next five to seven years.
He also said that buyers are increasingly interested in sub-$250 million RIAs. Two recent deals exhibiting this trend are Focus Financial Partners’ purchase of Bridgewater Wealth Management, a $150 million shop in Bethesda, Md., and Moss Adams’ acquisition of Rowling Dold & Associates, a $200 million RIA in San Diego.
Historically, sub-$250 million firms account for only one third of all RIA M&A, but so far this year, acquisitions of smaller RIAs account for 58% of all deals.
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