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Advisory M&A Activity Drops in Q2, Even as Deals Get Bigger

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While mergers and acquisitions activity in the advisory industry fell slightly in the second quarter, the deals were larger and total assets exchanged increased to $8.5 billion from $6 billion in the first quarter, according to Pershing Advisor Solutions’ “Real Deals Quarterly Update,” produced in partnership with FA Insight.

Only seven transactions targeting retail-focused RIA firms with at least $50 million in assets under management (AUM) or $500,000 in annual revenues occurred in the second quarter of 2011, the Real Deals report found, which is down from the 11 deals in the first quarter. The seven deals in Q2 are also fewer than the number of deals that took place in each of the previous four quarters.

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“Deal activity is still clearly not at the pace it was a few years prior, but it continues to progress,” Dan Inveen, principal and director of research at FA Insight, told AdvisorOne. “We continue to see some of the same themes as the last year or two—much less activity by serial buyers or consolidators.” But a definite uptick, however, in banks acquiring RIA firms.

The firms acquired in the second quarter of 2011 had a median of $800 million in AUM, twice the median amount of assets exchanged in the previous quarter, the report found. Nearly half the purchases included RIAs with more than $1 billion in assets, with the total assets exchanged, around $8.5 billion, up from just over $6 billion in the first quarter.

The most surprising trend in Q2 was the notable increase of bank and trust acquirers, the report notes. Since the financial crisis that began in late 2008, bank and trust firms have been largely absent as RIA acquirers, the report notes.

Bank or trust company acquirers comprised just 13% of all deals completed in 2010 and made only one acquisition in the first quarter of the year. However, they were involved in five of the seven deals during the second quarter. While “industry pundits had written off banks as active acquirers, we are seeing there are a fair number of banks that have capitalized sufficiently to entertain transactions,” Inveen says.

Inveen adds that “a great majority of banks continue to want to diversify away from interest-based revenue,” and banks are also motivated to purchase RIAs so they can cross sell various services to their existing client base.

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During the second quarter, SunTrust Banks announced the purchase of CSI Capital Management, a wealth management firm specializing in high-net-worth individuals with a focus on professional athletes, the report says. The acquisition adds approximately $1.5 billion in assets to SunTrust’s Private Wealth Division while also expanding its presence in Los Angeles and Atlanta. The acquisition also adds new offices in San Francisco and several other locations.

The largest nonbank deal of the quarter, the report found, was the merger of the investment management firms Horizon Asset Management and Kinetics Asset Management. After the deal is complete, the combined firms will have approximately $9.8 billion in assets under management.


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