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Industry Spotlight > RIAs

6 RIA M&A Trends to Watch Now

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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.

4. Wirehouse breakaways are getting bigger, too. 

In some ways, this is helping to drive the above. In this year’s second quarter, wirehouse breakaways had an average AUM of $494 million, a record and up more than $130 million from the previous quarter.

When large, well-resourced firms go independent, their path to becoming a billion-dollar firm sometimes is only a few transactions away. And because those deals make additional deal-making easier, it helps explain why the overall AUM average continues to grow.

Granted, the number of breakaways may drop in 2020 compared to last year. But that doesn’t change the fact that wirehouses face considerable headwinds (i.e., entrenched bureaucracies, relentless pressure on brokers to hit sky-high production hurdles and low payouts), so expect that to be a one-time blip.

5. Minority stakes are gaining in popularity.

In the first half of 2020, there were 13 deals in which a buyer purchased a minority stake in a target firm. That only happened four times during the same period last year. A few factors explain why.

For one, buying large firms is getting increasingly expensive. Secondly, when a founder builds a business from scratch, sometimes the prospect of relinquishing the entire thing at once is a bit too emotional for them.

Selling only part of it can represent a happy medium. Third, some RIA owners just desire a fresh injection of resources – not only in an effort to take their business to the next level but also as a back-stop in case a more severe recession is on the horizon ahead.

6. Professional buyers are here to stay.

RIA aggregators, consolidators or “platforms” comprised a good chunk of deal activity and minority acquisitions in the first half of 2020. Platforms, in particular, are taking off as a provider of everything from deal sourcing and financing to practice management tools.

Many RIA aggregators have private equity backing. The latest high-profile example came last in June, when the Chicago-based private equity firm GTCR acquired a 25% stake in Raleigh, North Carolina-based Captrust Financial Advisors, a $45 billion firm with a valuation of about $1.25 billion.

Looking Ahead

If 2020 has made one thing clear, it’s that anything can happen between now and the end of the year. Yet all signs indicate successful RIA firms are growing and that owners will be able to conduct deals at decent valuations.


Carolyn Armitage is a managing director with Echelon Partners, a Manhattan Beach, California-based firm that provides M&A advisory, valuation, consulting and investment banking services to RIAs.


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