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January 22, 2020 at 11:08 AM
Mergers and acquisitions have been on fire, with annual activity setting a sixth consecutive annual record at 132 transactions, up from 101 in 2018, according to 2019 DeVoe & Co.’s RIA Deal Book. As the report states, “This activity level is not more of the same. 2019 deal velocity accelerated to nearly three times the historic annual increase of 10-15%.”
Says David DeVoe, managing director of DeVoe & Co., in the report, “This unprecedented level of activity is good for the industry. A steady ramp toward healthy levels of activity is better than a deluge of sellers flooding the market in a given year.”
However, the DeVoe report also states that considering the size of the industry, there should be even more transactions.
“An industry with over 5,000 firms (ie. SEC registered RIAs ~$100MM + in AUM) theoretically should have 250-300 annual transactions — just for succession planning alone. And that doesn’t include the gravitational force of merging for scale, which has driven half of the transactions during the last two years.” (A recent survey by PwC found a majority of global CEOs saw M&A as a key way of growing in 2020.)
Yet buyers would be overwhelmed at that level, the report states, adding the caution that sellers should not wait too long to enter the market.
Who Is Buying?
RIAs and consolidators accounted for 83% of the buyers, according to the report. In fact, RIAs were responsible for 60 transactions, or 45% of the total, up from 41 transactions in 2018. A growing group of buyers — making 20 purchases, or 15% of the total — were private equity firms, broker-dealers and large financial institutions.
Focus Financial Partners had the most acquisitions with 19, followed by Mercer Advisors with nine.
Perhaps the biggest announcement of the year was Charles Schwab’s proposed plan to merge with TD Ameritrade. Another major move was Goldman Sachs’ purchase of United Capital, from which DeVoe sees far greater implications for the business.
Despite these two M&As, DeVoe points out that the top 10 transaction total AUM was $233 billion, down 41% from 2018’s $391 billion.
The largest deal was Charles Schwab’s purchase of USAA Investment Management, which had reportedly $90 billion AUM, followed by Goldman Sachs’ purchase of United Capital, which had $25 billion in AUM. The Schwab-TD Ameritrade deal, with a reported $21.3 billion in AUM, was third in size for 2019.
