RIA M&A Activity Sets Records in Q1

Two recent reports covering the first quarter, from Echelon and Fidelity, identify several trends in the RIA merger-and-acquisitions arena.

Echelon counted 76 deals in the January-to-March period, which it said was a quarterly record and the most active M&A period in the industry’s history.

Echelon’s deal tracking encompasses all transactions involving an RIA with more than $100 million in assets under management.

Fidelity identified 46 first-quarter RIA deals representing $91.4 billion, a 17.3% increase over the record-setting fourth quarter, and five in the broker-dealer channel totaling $64.9 billion. 

It said that from April 2020 through March 2021, 153 RIA transactions representing $244.3 billion in assets under management took place, 33% over the full year 2020.

Fidelity’s account includes transactions involving firms with more than $100 million but less than $20 billion in assets under management or advisement; breakaway advisors or teams leaving a financial institution to join an RIA firm who bring along at least $100 million in assets to the new business; and FINRA-registered independent broker-dealers, including transactions involving firms with more than $1 billion in assets under administration.

According to Fidelity, 20 deals of more than $1 billion each in the first quarter broke the previous quarterly record of 15, set in the third quarter of 2020.

It said branded acquirer acquisitions continued their steady increase in the first quarter, indicating that more organizations are emphasizing the integration of acquired firms in a cohesive enterprise, service and operating model, and a single brand. 

“This model is growing in importance as these brands become national in scope and look to create a repeatable client service model,” the report said.

In yet another trend, Fidelity noted, several strategic acquirers have announced multiple deals in the first quarter: Focus Financial Partners and Mercer Advisors announced four deals each; and Beacon Pointe Advisors, Captrust and CI Financial have already completed three deals each. MAI Capital Management, Wealth Enhancement Group and Dynasty Financial Partners each announced two deals in the quarter.

By comparison, only four firms announced multiple transactions, eight in all, in last year’s first quarter.

Minority Transactions and Breakaways

Echelon said this year is likely to see 20 minority transactions, which would lag the 26 recorded in 2020. It noted, however, that many buyers are developing or refining minority investment offerings for the benefit of wealth managers looking for strategic partners that can assist with future growth initiatives. 

It expects the number of minority investments to increase, with larger firms taking part in the activity.

Echelon recorded 124 breakaways in the first quarter, down by 17% from the previous quarter — but noting that this activity tends to be slower in the first three months of the year than later on. 

It projects 20 $1 billion-plus breakaways this year, down from 33 last year, but well ahead of the numbers in 2018 and 2019.

Echelon said there is more buyer interest in these big breakaways, most notably because they are ideal platforms, believed to have the ideal mix of size, structure and established platforms for future growth. 

In addition, they are mature businesses, often having more infrastructure, systems, management, protective redundancy and financial wherewithal. And most have upward of $3 million in EBITDA, which private equity and professional buyers seek as a cushion to protect financial performance in the event of a market downturn.