Number of RIA Deals Could Reach Triple Digits in 2017: Schwab

The 2017 transaction volume is keeping pace with the 2016 total of 94 deals

Jonathan Beatty of Schwab. Jonathan Beatty of Schwab.

There is continued confidence in the independent advisory model, according to Schwab Advisor Services’ Jon Beatty.

Beatty spoke with ThinkAdvisor to discuss the data that Schwab Advisor Services released on independent advisor industry transactions in the first half of 2017.

“We may be on pace to have a first-ever triple-digit number of deals in our study,” Beatty, who leads Schwab Advisor Services’ sales and relationship management team, told ThinkAdvisor. “We’ll see what the second half brings, but we are on a sustained pace of [merger and acquisition] activity in our industry.”

The 2017 transaction volume is keeping pace with the 2016 total of 94 deals. According to Schwab’s data, 52 deals were completed in the first half of 2017 – continuing the momentum in the first half of 2016, in which 52 deals also occurred.

Breaking it down by quarters, 32 transactions occurred in the first quarter of 2017, and 20 occurred in the second quarter.

According to Beatty, billion-dollar deals are helping to drive this continued momentum.

The average deal size in the first half of 2017 was $1.1 billion, compared with $1.4 billion in the first half of 2016. And there were deals in the first half of this year for firms that manage more than $1 billion.

According to Schwab’s data, 13 transactions involved more than $1 billion in assets under management, while seven involved more than $2 billion in AUM.

“I think for a while in our industry we thought the trend would be billion-dollar-plus firms buying up smaller firms,” Beatty told ThinkAdvisor. “We’re learning that M&A is an equal opportunity for all. And we’re seeing large firms come together probably for the purposes of scale and synergies around what it takes to run a large firm.”

In total, $59 billion in AUM was acquired in the first half of 2017, compared with $75 billion in the first half of 2016. Deal sizes ranged from $77 million to $17 billion in AUM acquired, according to the data.

The data also looks at who’s buying. In the first half of 2017, the data finds that RIA firms and strategic acquiring firms lead the buying activity.

RIA firms increased their buying activity and continued their streak as the most active buyer type in the first half of 2017, making up 43% of buyers, up from 35% in the first half of 2016.

Strategic acquiring firms maintained their prominence, making up 35% of buyers in the first half of 2017, up from 31% in the first half of 2016.

Beatty thinks these buyers are succeeding because sellers are looking for “like-minded” buyers.

“We talked with firms who have gone through the transaction process from a seller’s perspective. They tell us that they’re most interested in finding a like-minded buyer,” he told ThinkAdvisor. “Somebody who has walked in their shoes, understands their fiduciary model, how they care for their clients, [and] the types of services that they provide.”

Schwab’s industry transaction data reflects transactions involving primarily high-net-worth and endowment-focused RIAs with assets under management exceeding $50 million. The data also includes advisors in transition who joined an existing RIA and received equity consideration as part of the transaction.

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