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Large RIAs Drive M&A Tied to Record $500B in Assets in 2020: Report

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Mergers and acquisitions activity among RIA firms in 2020 set a record for the seventh year in a row, according to a DeVoe & Company report released Thursday. 

The industry rebounded from the global pandemic crisis with 159 transactions, a 20% increase over 2019. However, that number obscures recent momentum, the report says.

Forty-eight transactions in the fourth quarter came on the heels of the previous quarter’s record 44 transactions, the first time the industry posted more than 40 transactions in a quarter.

This was part of the third stage of a “surge,” as outlined in DeVoe’s first quarter 2020 report: A transaction volume high in January and February was followed by a lull from March 20 to June 20 when sales were delayed; next, RIA M&A snapped back to life during the third stage, from June 20 to Dec. 20.

Plus, the industry experienced its highest level of total assets under management affected by transactions in a single year: $499.6 billion in 2020, representing a 44% increase above 2019’s $347 billion and a roughly 1% jump from 2018′s $494 billion.

The new report says the surge will likely evolve and continue into the early months of this year.

Professionally managed firms with more than $1 billion in assets under management are the primary drivers of the surge in activity. In 2020, there were 46 deals of between $1 billion to $5 billion, compared with 25 the year before.

Large firm sales drove up the average assets under management of sellers to $1.02 billion, about 40% higher than the average of $743 million in 2019.

According to the report, DeVoe & Company expects a steady increase of small and midsize firms to sell externally over the next several quarters, extending the surge.

The most active acquirers last year — each with eight acquisitions — were CI Financial, Creative Planning and Hightower Advisors.

Industry Trends

The report highlights two emerging industry trends. 

One is the rise of “meta firms,” a term DeVoe coined to describe the roughly two dozen wealth management firms that have M&A as a core component in their business strategy and have become major acquirers.

The other is the growing importance firms assign to culture in M&A. The reported notes that some organizations are looking beyond the details of valuation and deal structure and are taking a proactive approach to company culture. 

They feel that the softer aspects of a transaction, such as culture, mission and strategy, should be given equal or even more weight than the economics of the transaction.

“A transaction is a little bit like Hotel California,” Hightower CEO Bob Oros said in the Devoe & Co. report, alluding to lyrics of the popular Eagles’ tune:  “You can check out any time you like, but you can never leave.”

“Culture and fit are critical determinants of whether a transaction is going to be successful,” Oros explained.

The top 12 firms, which handled 40% of transactions in 2020, were:

  • CI Financial, 13*
  • Hightower Advisors, 9**
  • Creative Planning, 8
  • Mercer Advisors, 7
  • Buckingham Wealth Partners, 5
  • EP Wealth, 5
  • Wealth Enhancement Group, 5
  • Emigrant Partners, 4
  • Allworth Financial, 4
  • MAI Capital Management, 4, and
  • Cerity Partners, 4

*CI Financial states that it completed 13 RIA transactions in 2020, including several of its affiliated entities;  Devoe & Co. reported CI’s M&As tally in 2020 at as eight deals. 

**Hightower says it conducted nine transactions in 2020, including a merger deal for one of its member firms; Devoe & Co. reported Hightower’s M&As tally in 2020 at eight deals.