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July 30, 2020 at 11:26 AM
It’s safe to say that many of us will be glad when 2020 is over. The year thus far has been rife with challenges, and it seems like a lifetime has gone by in seven months.
However, through it all, deal-making in the RIA space has remained surprisingly resilient, despite the fallout from the coronavirus, which has yielded volatile markets and an uneven economic outlook.
According to our research, here are six trends that are shaping the landscape.
1. Firms are delaying deals, but not abandoning them.
There were 81 RIA mergers and acquisitions through the first six months of the year, a drop from the same period in 2019, when there were 101.
The slowdown was especially pronounced during the second quarter. Only 35 deals were completed during that time, the lowest quarterly number since the third quarter of 2017.
Unsurprisingly, experienced buyers started to renegotiate deal terms when markets began to slide. Still, it’s telling that the number of transactions rebounded in June, which suggests that deal volume could accelerate over the balance of 2020.
2. Fundamentals are driving value.
With buyers having an easier time obtaining financing thanks to low-interest rates, ample opportunity remains to create scale and synergies through acquisition. In the near term, this route may provide firms the best chance to grow, as stocks continue to yo-yo and businesses across the country have yet to re-open fully.
Longer term, the prospects for organic growth are brighter than many realize. That’s because merged firms have the resources to hire the best people and build the best tech stacks.
The result is higher operational efficiency, which improves the client experience, yielding higher retention levels and more referrals.
3. Large RIAs are getting larger.
In 2019 — when the S&P finished the year up nearly 30% — firms that made deals had an average of $1.47 billion in assets under management. Despite the slowdown in M&A activity and the considerable market selloff in March, that figure actually went up during the first six months of the year, topping $1.5 billion for the first time.
In all, nearly half of the transactions so far this year (16 of 35) included firms with at least $1 billion in assets. Smaller firms have no doubt noticed, realizing there are a series of distinct advantages related to scale and having access to more resources. As a result, they’ve sought to play catch up, which only adds to the rise of ever-larger RIAs.
