Unlike the stock market, which took a sharp turn to the downside in late 2018, the M&A market for RIA deals continued its strong momentum to finish the year setting a new record high.
A total 181 deals were completed — a sixth consecutive annual high — representing roughly $369 billion in assets under management, according to Echelon Partners, an investment bank. The average transaction size topped $1.3 billion, almost a third larger than the average deal size a year ago and close to 18% of the deals had $1 billion in more in AUM.
“RIA M&A deal activity did not show signs of weakening in 2018; on the contrary, it strengthened, which could be an indication that RIA executives are looking to hasten plans for liquidity events ahead of what could be an impending recessionary environment,” according to Echelon.
Consolidators dominated the 2018 deals, continuing a recent trend, led by Focus Financial, with 21, followed by Mercer Advisors (8) and Captrust (4). Consolidators or strategic buyers accounted for 47% of the deals in 2018, followed by RIA firms themselves (28%), other firms (14%) and banks (11%), which have accounted for the smallest share in the RIA M&A space since 2012.
The share of RIA acquirers fell substantially in 2018, down from 36% in 2017. Echelon said the decline was “likely due to well-capitalized and sophisticated strategic buyers or consolidators aggressively entering the space and winning deals.”
A key example of the ascendance of such strategic buyers was the purchase of Hilliard Lyons, with $50 billion in AUM, by Robert W. Baird & Co., the biggest deal by AUM in the fourth quarter.
Looking ahead, Echelon expects continued strong M&A activity for RIAs in 2019, supported by a more “dovish” Federal Reserve, which suggests that financing for potential buyers would remain “feasible.”