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Wealth Management M&As Slow Dramatically: Fidelity

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M&A activity in the wealth management space is slowing dramatically and shifting the balance between buyers and sellers because of the economic and financial impact of the COVID-19 pandemic.

Fidelity reports just three RIA transactions in April, representing $1.4 billion in client assets, and one broker-dealer acquisition by LPL Financial representing $1.5 billion. This follows three RIA transactions in March totaling $1.2 billion in client assets, the lowest for the first quarter.

When combined, the AUM of the March and April RIA deals ($2.6 billion) was the lowest for any two consecutive months’ worth of deals since Fidelity began tracking RIA M&A activity in 2016.

The four deals in April are below. The first three are RIAs:

  • Houston Asset Management           Allworth Financial, acquirer                 $450M AUM
  • Coe Financial Services                      Creative Planning, acquirer                  $126M AUM
  • Willingdon Wealth Management    Exencial Wealth Advisors, acquirer     $800M AUM
  • Lucia Securities                                  LPL Financial                                           $1.5B   AUM

“We’re clearly seeing a slowdown in deals announced and closed,” said Scott Slater, vice president of practice management and consulting at Fidelity Clearing & Custody Solutions. 

In reality, there’s plenty of activity before the surface,” said Slater. “People aren’t sitting on the sidelines … But the balance of power has shifted more toward the buyers now. Buyers can and will be more selective in which they’re acquiring.”

Slater expects RIAs with an attractive client base will still be able to attract competing offers and influence the price they receive. Smaller firms with a declining revenue stream and struggling to grow will have a harder time. Slater expects those firms will see downward pressure on multiples but hasn’t seen much of that yet.

Valuation multiples remain 4-6 times earnings for smaller firms with $500 million in AUM and 8-10 times earnings for larger RIAs with $2 to $3 billion in assets, according to Slater.

He expects strategic serial acquirers, including those with private equity financing, will continue to be active in the RIA M&A market. “They’re well-positioned with capital,” he says.

That trend is now accelerating with private equity firms taking minority stakes in serial acquirers, said Slater, noting Abry Partners’ minority investment in Beacon Pointe, providing the RIA firm with additional capital for acquisitions as well as technology and operations.

More capital moving into the serial acquirer space “puts buyers in a good position,” said Slater.

But now all acquirers and sellers have to contend with a very different type of negotiation during the pandemic, namely a distant, remote one. “Buyers will want to have some level of face-to-face interaction,” said Slater. “It will be interesting to see what happens later this year.”

He expects the due diligence involved in deal-making will be more precise so that buyers and sellers can know what a potential partnership will look like.

And if the economy continues to struggle, more sellers will want the platform and technology support and brand strength that an acquirer can provide, said Slater.

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