Merger and acquisition activity in the advisory space will continue to heat up, with experts in the field agreeing that industry consolidation is taking hold.
“You have [had] a lot of transactional activity in the wirehouse space — that’s been going on for many, many years,” said Elliot Weissbluth, CEO and founder of RIA consolidator HighTower, during the DeVoe M&A + Succession Summit held in Miami Beach in December. “We’re now starting to see over the past couple years a real increase in M&A activity in the RIA space.”
“Strong momentum” in the number of deals has been exhibited over the last couple of years after a “tumultuous history” of deals dropping dramatically in 2008 and 2009 and eventually coming back in “a jagged manner,” said David DeVoe, managing director of DeVoe & Co., who spoke at the DeVoe summit.
The deal volume in 2017 was on track “to be yet another record year,” DeVoe said. “I expect we probably will break through that third successive record year of M&A activity,” with the industry experiencing over the next five to seven years “a steady and intensely strong surge” of M&A activity. “We’re hitting that inflection point where this industry actually will start to consolidate, and potentially consolidate aggressively,” he added.
What’s driving the activity? Advisors’ succession planning needs, according to DeVoe, plus the fact that advisors “over the last two years have merged or sold to gain the benefits of scale more than I’ve seen in the last 50 years.”
Indeed, according to the Nuveen/DeVoe Deal Book, RIA merger and acquisition activity got off to a record start in 2017, with 44 transactions executed in the first quarter. The transaction volume increased a steep 29% over the 34 deals tracked during the same period in 2016, according to the DeVoe Deal Book.
“The first quarter of 2017 was the most active quarter ever of mergers and acquisitions in the RIA industry,” said DeVoe. “Advisors are selling and merging to gain the benefits of scale in an increasingly competitive marketplace.”
DeVoe’s second quarter 2017 Deal Book found the following:
Mega-deals were back in Q2, pushing the AUM transacted to the rarified air of over $100 billion in a three-month period.
The industry experienced an interesting shift in the composition of Buyer Categories as banks sustained newfound interest in acquisitions, and RIAs moved toward the sidelines.
RIAs as a Buyer Category dropped from 29% of the acquisitions to an alarming low of 22% during the period, a surprising development given the number of RIAs who have capital and are focused on acquiring.
Beginning of Consolidation
Weissbluth stated that the advisory industry is “at the very beginning of consolidation,” and that “it’s for all very good reasons.”
Looking ahead, “you’re going to see aggregation” in the RIA space, Weissbluth asserted. “Statistically, if you look at the total volume of deals and activity, there’s a volume of transaction activity that is trending upwards.”
But another trend is emerging: “The number of ‘aggregator’ firms that are in the business — like us, actually consummating serial transactions — is starting to increase,” Weissbluth said.
In separate comments to IA, Weissbluth said that HighTower isn’t worried about increased competition in the aggregator space, “because of the size of the overall opportunity, the fact we have a differentiated platform, compelling brand, client and advisory centric service culture and access to capital.”
What’s more, he continued, “Trillions of dollars in assets are expected to migrate into the fee-based RIA space over the next five years, and today, aggregators represent less than 2% of the marketplace.”