Although the second quarter’s 29 RIA mergers and acquisitions marked the slowest quarter in almost two years, total 2020 deal activity may still end up comparable to 2019, according to DeVoe & Co.
“The year seems on track for ~130 transactions, but may edge above 2019,” David DeVoe, CEO and founder of the firm, told ThinkAdvisor by email. DeVoe & Co. reported 132 transactions for 2019.
In Q2, there were 29 transactions, a 17% decline from 35 in Q1 last year and a 9% decline from Q2 2019, according to the Q2 Capital Group/DeVoe RIA Deal Book released Wednesday.
The decline was “less drastic than one would have expected,” DeVoe said.
Transaction volume at the midpoint of 2020 was exactly the same as it was a year ago, at 64 transactions, it said.
“After six years of consecutive record highs, the RIA M&A market slowed down” in Q2, the Deal Book said. “As COVID-19 impacted the lives of all Americans, advisors focused intensely on supporting them, rebalancing their portfolios and recasting their financial plans.”
However, Q3 got off to a fast start, DeVoe noted, telling ThinkAdvisor: “July started with fireworks. We are already at 8 deals for the month.”
In Q2, “the big surprise was the divergence, [with] large firms sales spiking while smaller firms dropped,” DeVoe said.
Activity for firms with less than $1 billion in assets under management tumbled 35% in Q2 from a year ago, while activity for firms with more than $1 billion jumped 47%, according to DeVoe & Co.
As a result, the average transaction size “shot up” to $942 million, almost 27% higher than the 2019 average, the firm noted.
In light of the greater number of transactions above $1 billion, it was “not surprising that consolidators maintained a strong lead among the buyer categories,” accounting for 44% of acquisition volume in Q2, the Deal Book said. That was up from their 41%-43% share of the past two years, it noted.
Standout acquirers within the consolidator category in the first half of 2020 included Emigrant Partners with three transactions, including a minority investment in $14.5 billion Stratos Wealth Group; Mercer Advisors and Captrust, also with three transactions each; and Hightower Advisors and Allworth Financial with two transactions each.
“In contrast, RIAs lost share,” coming in at 33% of acquisitions, down six percentage points from 2019, it said. Creative Planning was No. 1 with four transactions through the end of June. MAI Capital Management, Frontier Wealth Management and the Mather Group each posted two acquisitions in the period.
— Check out RIA M&A Activity Recovered in June Despite Pandemic: Fidelity on ThinkAdvisor.