Echelon Partners debuted Wednesday its RIA M&A DealBook and website, with data showing that a record number of M&A deals closed in the advisor space last year — 138 transactions, or a 10% growth over 2015’s record level. The firm said there has been a 16% compound annual growth rate in deals “since the business cycle trough in 2009” and that “M&A activity has increased in 6 of the 7 years leading up to 2016’s record level.”
Moreover, Echelon CEO Dan Seivert said in a statement that the advisor-focused investment bank and consultant anticipates a “significant increase in advisors looking to drive inorganic growth through an M&A strategy as well as an increase in deal activity.” It’s not only the number of deals that has risen: the size of the acquired firms has also increased. The number of acquisitions involving wealth managers with more than $1 billion in assets under management “more than doubled in 2015 and 2016 vs. 2013 and 2014,” the report found.
In an interview Tuesday, Seivert presented the major trends — some surprising, or “contrarian,” as Seivert calls them — that are driving this record growth deal activity beyond the traditional driver of the aging advisor workforce.
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The Echelon site, RIADealBook.com, is meant to be a meeting place for, as the site proclaims, “DealMakers,” and includes the M&A data for RIAs (called Wealth Management Deals), along with separate reports on “Breakaway Activity,” “WealthTech” deals (covering fintech companies in the advisor space), and “Investment Management Deals’ among asset management firms. In addition to the data, Seivert says that on the free site “we’re putting up white papers, notifications of conferences, vendor partners” with whom Echelon has a “trusted relationship” in order to facilitate “dealmaking.” Seivert says that of the partners on the site, “we’re not really charging them; we help them, they help us.”
One interesting note on the breakaway deals: “Having done a number of presentations with [Pershing Advisor Solutions CEO] Mark Tibergien,” Seivert says, “I’ve come to the belief that ‘breakaways’ are broader than just wirehouses” and include “next-gen RIAs breaking away.”
“It’s an interesting phenomenon, driven by a lot of partners” in advisory firms “who’ve contributed to these firms” but, frozen out of profit-sharing and partnerships, “they’re starting their own firms or joining other firms.”
Returning to the drivers of M&A activity, Seivert focused on five trends.
1. The Increased Availability of Financing
Live Oak Bank started this trend by entering the advisor loan market in 2013, Seivert said, followed by other firms (Echelon, he said, advises on equity investing and does not provide debt financing). There are now a number of lenders, he said, that have followed Live Oak’s lead, and in some instances have moved beyond Live Oak’s standard financing in the size of loans made and other terms.