Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Industry Spotlight > RIAs

Biggest Quarter Ever for RIA Deals: DeVoe

Your article was successfully shared with the contacts you provided.

The momentum behind RIA mergers and acquisitions accelerated further in the third quarter after a strong first half of 2019, achieving the biggest quarter the industry has ever seen and keeping the sector squarely on track for yet another record year, according to the latest Nuveen/DeVoe RIA Deal Book.

After 33 transactions in the second quarter, there were 36 transactions during Q3, up from 22 in Q3 a year ago and higher than the 12-month trailing average of 33, the latest edition of the Deal Book showed.

That surge boosted the 2019 transaction count to 101 at the end of Q3, one ahead of all 2018 RIA M&As with one full quarter still go.

“Based on momentum to date, RIA M&A will likely end the year at roughly 140 transactions,” David DeVoe, managing director at DeVoe & Co., told ThinkAdvisor on Monday.

That’s more than the 129 transactions that Scott Slater, vice president of practice management and consulting at Fidelity Clearing & Custody, recently predicted at that firm’s Inside Track conference in New York. Slater explained that the fourth quarter tends to be very active for M&A activity in the RIA space.

There will likely be 35 to 42 transactions in Q4, DeVoe predicted Monday. “The current volume leaves no doubt that 2019 will be the industry’s sixth successive record year of activity,” he said in a statement, adding: “This acceleration of activity is healthy for the industry. Even at 100 to 150 transactions per year, the M&A activity is less than half of what it should be for an industry with over 10,000 firms.”

DeVoe also predicted there’s little that could throw a wrench into his Q4 and 2019 projections now — even a potential recession. “The seeds for the Q4 crop of M&A deals were planted long ago; little will influence that bounty at this point,” he told ThinkAdvisor. “The impact of a stock market decline or other negative events would more likely manifest itself in the activity four to six months out,” he said.

The “unprecedented M&A activity” so far in 2019 was driven by “high valuations, the lure of scale, and a strong stable of thoroughbred acquirers,” according to the Q3 Deal Book.

Based on DeVoe & Co.’s assessment, the combination of those factors is expected to “drive increasing merger and acquisition activity in the industry for the next five to eight years,” the report predicted. There’s recent evidence that RIAs themselves “wholeheartedly agree” because 60% of respondents to DeVoe & Co.’s recent survey said they expected the momentum to continue to grow for five or more years, according to the report.

This year’s acquirers have been led by Charles Schwab, which bought USAA’s Investment Management Company and its $90 billion in AUM for $1.8 billion in Q3 (Aug. 16). Other major acquirers have included Goldman Sachs, which bought United Capital and its $25 billion in AUM for $750 million in Q2 (May 16).

United Capital in Q2 (May 16), a $750 million cash transaction that the report called an “important flashpoint in the industry,” adding that purchase “served as a second recent proof of concept for the private equity-backed consolidator model.”

Bigger, however, is “not always better,” according to the report. “Sometimes smaller is better” and that has “definitely been the case in recent years for RIA acquirers,” it said.

Many RIAs have set their acquisition sights on — and “tailored their business models to” — RIAs with less than $500 million in AUM, the report said. The sub-$500 million segment has “ballooned year-to-date with 55 transactions, far above the entire year of 2018 and more than double the number just a few years ago,” it said. Making up more than 50% of the transactions executed year to date, RIAs in that size range often use a sale to achieve strategic goals, it noted.

“Succession is still a key decision driver” in that segment, “but scale has emerged as an equally important factor,” according to Francine Miltenberger, managing director at DeVoe & Co. “Advisors are thinking several steps ahead and often executing a transaction to solve succession, while also gaining access to additional services, valuable resources and better technology that a larger firm can provide.”

— Related on ThinkAdvisor:


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.