Roll-Up Firms Biggest RIA Buyers in First Half of 2014

First two quarters show healthy pace in transactions for RIAs, Schwab says

Click to enlarge. Source: Schwab Advisor ServicesRegistered investment advisors saw a steady pace of mergers and acquisitions in the first half of 2014, according to research by Schwab Advisor Services on M&A transactions.

There were 29 deals completed in the first half of the year, totaling $32.6 billion in assets under management (AUM). The second quarter had 16 deals totaling $19 billion in AUM, and in the first quarter, 13 deals were completed with $14 billion in AUM.

The overall deal size increased from last year. Deals in the first half of 2014 grossed $1.13 billion, compared with $808 million in the first half of 2013.

Strategic acquiring firms closed a bigger share of deals than in the period last year. They represented 39% of total deals closed, while RIAs completed 31%. The report also shows an increase of acquisitions by offshore entities, which represented 7% of the total deals for the first half of 2014.

The activity for the second quarter of 2014 almost reached record highs – similar to that of the third and fourth quarter of 2013.

“While we see consistency in M&A activity in the RIA industry, with strategic acquiring firms continuing to show their buying power, we are not seeing the spike in industry consolidation that many analysts and observers have been predicting,” said Jonathan Beatty, senior vice president for sales and relationship management at Schwab Advisor Services, in a statement. “Based on the data in our research, it appears RIAs are indeed in a good position to monetize their firm’s value, but they are more often looking to preserve the owner-operator model and retain their independence through internal succession.”

The RIA Benchmarking Study, released in July, also found that 9 out of 10 RIA firms are now looking internally when it is time to choose a successor. The statement suggested that founders and firm heads want to foster a continuity as well as nurture the already-present culture within their firms.

“As RIA firms grow and continue to evolve into efficiently managed businesses built for enduring success, they will increasingly appeal to a broader range of buyers,” Beatty said. “Internal succession is one of the best ways to strengthen, scale and grow a firm to potentially make it more attractive to a buyer. I expect we will continue to see consistent M&A activity in the coming months as acquirers seek opportunities and advisors consider more choices to monetize their firm’s value as part of a succession strategy.”

While it may look like a good time to sell, many advisors are choosing to grow and create more value within their firms as opposed to selling.

One-third of the firms who participated in the Schwab study have doubled their AUM since 2009. Deal activity so far has been steady and the data suggests that this “reflects the healthy ecosystem of the RIA industry,” the Schwab statement said.

“The RIA model continues to attract not just investors and advisors, but also more types of acquirers – in the U.S. as well as internationally.”

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Check out RIAs Biggest Buyers of Firms in 2013 on ThinkAdvisor.

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