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The momentum behind RIA mergers and acquisitions only accelerated in the second quarter after a strong first quarter, putting the sector squarely on track for yet another record year, according to the latest Nuveen/DeVoe RIA Deal Book.

After 32 transactions in the first quarter, there were 33 transactions during Q2, up from 18 in Q2 a year ago and higher than the 12-month trailing average of 29, the latest edition of the Deal Book showed.

“With 65 transactions in the first half, there is a clear path toward a new all-time high of annual activity,” the report said, noting activity in the first six months was a “solid 30% higher than transactions in the first half of the last two years — both of which were successive records at 50 and 49, respectively.”

With rankings in the last three quarters among the industry’s strongest four quarters ever, RIA M&A “momentum has moved from a ‘spike’ to a ‘surge’ and is now trending toward a possible ‘new normal’ of heightened activity,” according to the latest Deal Book.

“The industry is experiencing an unprecedented, sustained surge, which seems likely to continue,” Brad Grubb, managing director at DeVoe & Co, said in the report. “High valuations, the interest in gaining scale, and the lack of succession plans will continue to contribute to the sustained pace,” he predicted.

RIA valuations have “broken through to an all-time high,” David DeVoe, the firm’s managing partner, pointed out in a statement. “Despite richer valuations than the previous record in 2008, these valuations are rooted in stronger fundamentals,” he said. In the past few months, valuations have “attained levels I have not seen during the 16 years I’ve focused on RIA M&A,” he said. Buyers in today’s market, meanwhile, are “not necessarily paying unjustified prices,” according to DeVoe & Co.

Potential issues that could throw a monkey wrench in the works during the back half of this year, however, include major changes in the overall market. “A recession, a steep market decline or prolonged market volatility are all factors that would likely compress valuations,” DeVoe told ThinkAdvisor. One other potential issue: “If we had twice as many sellers in 2020 as we had in 2019,” he said, the current set of buyers “couldn’t absorb all of them.”

Other key highlights from the report, DeVoe said, included: RIAs have become the dominant buyer category year to date after not surpassing 50% market share for many years; “consolidators didn’t sit on their laurels as seven firms executed three or more transactions each” in the first half of 2019; and sub-acquisitions “spiked to a new record quarter with 11 transactions, driving a new area of growth for consolidators.”

Among consolidators, Focus Financial Partners “broke away from the pack with 15 transactions year to date,” while Mercer Advisors and Captrust Financial Advisors both completed four transactions and four veteran acquirers — HighTower Advisors, Mariner Wealth Advisors, Emigrant Partners (formerly Fiduciary Network), and Wealth Partners Capital Group — “were not far behind with three transactions each,” the report said.

The average seller size (excluding transactions over $5 billion) ended Q2 at $821 million, the report said, adding acquisitions of RIAs with $250 million-$500 million increased momentum with 27 transactions, representing 42% of all transactions in the first half of 2019. “At the higher end of the scale, acquisitions of RIAs with $1-$5B made up 17% of all transactions in the first half, with 11 transactions, 8 this quarter alone, a near record,” it said, adding: “Given the pace of transactions in this size category, it’s more than likely that 2019 will beat the five-year average of nearly 17 acquisitions of firms with $1-$5B.”

The report also called United Capital’s sale to Goldman Sachs an “important flashpoint with long-term strategic implications and potential repercussions.” The $750 million cash transaction was “another step forward in Goldman’s broader strategy to bolster its wealth management franchise and serve a broader client segment,” the report said.

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