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RIA M&A Activity Hits All-Time High

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In 2015, mergers and acquisitions activity in the RIA industry hit an all-time record.

According to the DeVoe & Company RIA Deal Book, which tracks mergers, sales and acquisitions of firms that are registered with the Securities and Exchange Commission as registered investment advisors, there were 123 M&A transactions in the last year.

This is a 37% increase above 2014’s previous record of 90 transactions, and more than double the 58 transactions executed in 2013.

“The continued surge in RIA M&A activity over the last two years is a natural phase of consolidation that most hyper-fragmented industries experience as they mature,” said David DeVoe, managing partner at DeVoe & Co., in the report. “We expect this momentum to continue and potentially accelerate over the next five to seven years.”

Already, according to the report, 2016 is off to a strong start with 10 transactions being executed in January.

The DeVoe RIA Deal Book finds that this year’s M&A increased despite a backdrop of challenging conditions – largely thanks to accelerating activity across all buyer categories, the re-emer­gence of private equity and banks as acquirers, and the aging demographics of RIA owners.

“Historically, significant stock market declines and sustained periods of market volatility have dampened M&A activity in the RIA space,” the report states. “These circumstances pull advisors away from the negotiation table, as they focus their energy on reassuring clients and monitoring the market.”

The “stock market roller coaster of 2015” didn’t appear to dampen the transaction volume, the report finds.

In addition to an overall spike in M&A activity in the RIA industry, the report finds there was a large spike in “mega-deals.” The report defines a mega deal as a transaction involving sellers with more than $5 billion in AUM.

“In fact, 2015 could be considered the ‘Year of the Mega-Deal,’ with 13 firms man­aging $5 billion or more in AUM selling to a third party,” the report states.

By contrast, 2014 and 2013 had two and three transactions of this size, respectively.

Vic Esclamado, managing director at DeVoe & Company, believes this year’s “unprecedented” amount of large deals was driven by a broad mix of acquirers, including consolidators, banks, private equity firms, and even a technology company. “The entrance of numerous new well-financed players target­ing extremely large RIAs indicates both confidence in the independent model, as well as the accelerating pace of change to this industry,” said Esclamado, in the report. “Acquirers are making large investments as part of strategic moves associated with the evolving needs and expectations of the U.S. investor.”

The large number of large deals in 2015 may also be from the reappearance of private equity firms in the RIA space.

The report found that PE firms such as Hellman & Friedman, TA Associates, Lightyear Capital and Genstar Capital all acquired stakes in multibillion-dollar AUM firms.

“Often referred to as ‘smart money,’ private equity clearly sees the power of the independent advisor model and investing to capitalize on the expectation that RIAs will continue to win in the marketplace,” the report states.

The DeVoe RIA Deal Book includes all transactions identified with over $100 million in assets under management. The report also includes advisors who leave other financial service institutions to join RIAs and are expected to bring over $100 million in AUM to the new company, as this transition would likely include consideration paid for said transition.

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