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RIA M&A Activity Recovered in June Despite Pandemic: Fidelity

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June was a stellar month for RIA M&A activity, signaling a possible rebound from the doldrums of April and May.

Fidelity reports 14 RIA deals with a total $20.6 billion in assets plus Orion Advisor Solutions’ purchase of Brinker Capital, with $24.5 billion in assets under management — more than double the seven deals reported in total for April and May.  

“The market came back more rapidly than many had anticipated,” said Scott Slater, vice president of practice management and consulting at Fidelity. “There are still a lot of motivated buyers with lots of capital and low rates and firms looking for succession [arrangements] … and for platforms that can help them be more efficient and help them to scale operations.”

Slater said there could be some fluctuations in deal activity going forward, but he doesn’t expect a return to March and April’s low levels when each month’s deals represented $1.5 billion or less in total AUM.

In comparison, the 14 transactions in June, excluding Orion and Brinker Capital, averaged $1.5 billion in AUM each (Fidelity’s database excludes deals over $20 billion for historical comparison purposes), and the momentum for RIA M&A activity is continuing into July, Slater said.

In early July, Mercer Advisors reported two acquisitions: MJ Smith and Associates and ClearRock Capital, and Eaton Vance Investment Counsel acquired WaterOak Advisors.

Asked whether dealmaking in the RIA has turned a corner and is poised for another record year — like 2019 — Slater said it was too early to say and noted that activity may depend on what happens in the financial market. “I’m cautiously optimistic,” he said.

He noted that multiples have been holding up — 4-6 times earnings for smaller firms with up to $500 million in AUM and 8-10 times earnings for firms with $2 billion to $3 billion in AUM, but deal structures have changed with upfront payments to sellers “moving back down to the 50% range,” from the 60%-80% range that had prevailed in the past few years. “Buyers are more careful” managing their risks, according to Slater. 

The most dominant buyers in the second quarter based on the number of deals were Creative Planning, with three acquisitions, The Mather Group and Dynasty Financial, which had two deals each, according to Fidelity. There were no deals involving AUM of $1 billion or more in April or May but four such deals in June: 

  • Captrust Financial Advisors and Lakeside Wealth Management, $1.628 billion
  • Cresset Asset Management and PagnatoKarp, $2.3 billion
  • Dynasty Financial Partners and Cyndeo Wealth Partners, $1.2 billion
  • Great-West Lifeco U.S./Empower Retirement and Personal Capital, $12.240 billion

The second quarter also saw a number of acquiring firms take in funding from minority investors, which will presumably help them finance more acquisitions. They include Captrust Financial Advisors (from investor GTCR) and Dynasty Financial (from 1248 Holdings).

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