Podcast Center
Video Center
Webcasts
Resource Center
Events
February 15, 2017 at 10:57 AM
When it comes to mergers and acquisitions of RIAs, much attention has rightly been given to “rollup” or consolidator firms like Focus Financial, United Capital and Dynasty. But the latest data published Feb. 9 in the Nuveen/DeVoe RIA Deal Book reveals another face of the consolidator trend: sub-acquisitions by those consoiidators’ partner RIA firms accounted for 12% (or 19) of all 142 deals last year, and 22% of established RIA firm transactions in 2016, amounting to a “breakout year for sub-acquisitions.” The average size of those acquired RIA firms was over $1 billion in AUM.
Why? Consolidators, said DeVoe in an interview, are more interested in acquiring RIA firms with $1 billion or more in AUM, but the “expertise and capital” of their parent firms “ennable their affiliates to make acquisitions,” particularly of RIA firms in the $100 million to $500 million in AUM space. The number of deals by those affiliate firms has “nearly quadrupled since 2014,” according to DeVoe. “Buckingham [Asset Management] has done 20; Colony [The Colony Group] has done six.” Both are Focus Financial firms.
“Sub-acquisitions have become an important extension of many consolidators’ M&A strategies,” the Deal Book reports, “enabling the parent to accelerate growth while engaging a segment of the market that otherwise would not have been an efficient use of time.”
That doesn’t suggest that the consolidators don’t remain active buyers — “the megadeals have been pretty consistent over time” — but at least over the past year, RIA acquisitions showed more of a “barbell effect,” DeVoe said, with both large firms and small firms being acquired but with acquirers taking “a breather” on firms in the $500 million to $1 billion space.
But those midsize firms, suggested DeVoe, will account for a larger percentage of acquistions over the next few years. Those firms “go through a fair amount of change” as they grow, often hiring a business development officer and a COO along the way and acquiring some scale. But as they approach the $1 billion in AUM mark, advisory firm owners who “think they can sell to the next generation” will realize their growth makes it less likely that the next generation can afford to buy the firm. So, DeVoe says, “over time this will be one of the most active segments” among advisory firms’ M&A. “The continued procrastination of the RIA community to execute succession planning,” he argues, “will likely force a surge of unanticipated sales in the future.”
