RIAs overtook strategic acquiring firms as the leading buyer of advisory firms in 2013, according to data released Tuesday by Schwab Advisor Services. Mergers and acquisitions are up overall, too, although the amount of assets under management acquired in those deals dropped.
There were 54 completed deals in 2013, according to Schwab, representing nearly $44 billion in assets under management. RIAs accounted for 44% of all deal activity.
Strategic acquiring firms, which represented more than half of M&A deals in 2012, accounted for just 32% in 2013.
“We saw a healthy, consistent amount of M&A activity in the RIA sector last year as the independent model continued to be a destination of choice for advisors and more firms looked to fast track their growth,” Jonathan Beatty, senior vice president of sales and relationship management for Schwab Advisor Services, said in a statement. “There was an identifiable trend last year during the second half of 2013 in which larger firms acquired smaller and midsize firms, an indication that firms across the spectrum looked to M&A as a means to quickly expand their footprint.”
David DeVoe, managing partner at Devoe and Co., a merger and acquisition consultant and the former head of RIA mergers and acquisitions for Schwab, noted that RIAs have been picking up steam as a dominant buyer for some time.
“We’ve seen over the last six or seven years the RIAs and the consolidators being the dominant buying forces,” he told ThinkAdvisor on Tuesday. “Clearly RIAs are showing a lot of strength, making the most acquisitions out of any other buying category in 2013. It’s an indication of the increased sophistication of RIAs with mergers and acquisitions. They’re acquiring not just to grow, but to achieve other strategic goals and objectives.”
Schwab found activity picked up considerably in the second half of the year. There were 36 completed deals in the second half, twice as many as in the first half, representing more than $28 billion.
Beatty noted that deal activity is hard to predict over short periods of time. “That’s why we’ve changed our cadence on this from every quarter to twice a year,” he told ThinkAdvisor on Tuesday. “M&A is a long cycle, and typically deals take six to 12 months to happen.”
Beatty was optimistic about the amount of growth in the second half, though. “Looking at the longer term trends, we are excited to see a significant rebound in the second half of the year. If you remember at the midpoint, we were somewhat concerned that deal activity had slowed to levels that we hadn’t seen since 2007.”
He said that M&A activity has been fairly consistent over the past several years, averaging about 50 deals per year since 2007. Ultimately, that’s good for the industry because “it shows that M&A is a place for sellers and buyers to come together. At the same time, we can’t think of 2013 as a breakout year for M&A activity in the industry.”
DeVoe shared Beatty’s optimism.