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Industry Spotlight > Mergers and Acquisitions

Record Q1 for RIA Deals: Report

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What You Need to Know

  • RIA M&A is on track to surpass last year’s record-breaking 159 transactions, despite softened activity in February and March.
  • The report cited continued high valuations, attractive value propositions of strong acquirers and the heightened inclination of RIAs to sell externally.
  • RIA M&A activity is likely to increase amid changing owner demographics, continued lack of succession planning and rising interest in joining forces with bigger firms.

First-quarter RIA merger-and-acquisition activity set a record of 58 transactions, with a monthly high of 33 transactions in January, slowing to 25 in February and March, according to a report from DeVoe & Co.

RIA M&A is on track to surpass last year’s record-breaking 159 transactions, notwithstanding softened activity in February and March.

The report cited these reasons: continued high valuations, attractive value propositions of strong acquirers and the heightened inclination of RIAs to sell externally.

DeVoe & Co. expects more firms in the $500 million to $1 billion range of assets under management to sell over the next several quarters. These midsize and smaller outfits constituted 26% of activity in the first quarter, up from 17%–18% in recent years.

The report said the new normal of RIA M&A activity is likely to arc upward over time, and continue to be strong for five to seven more years, with owner demographics, continued lack of succession planning and increasing interest in joining forces with bigger counterparts supplying an increasing stream of sellers.

According to the report, valuations for sellers will expand in range. Firms that reacted quickly to the pandemic and even flourished over the last year will command high valuations, while those that struggled may find their offers disappointing. 

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Sellers’ average assets under management held steady at the $1 billion level in the first quarter, on par with the 2020 average and well ahead of 2019’s average of $747 million. 

Sellers in the $1 billion-plus category maintained their higher activity levels from 2020, accounting for 39% of transactions during the period, compared with 38% in 2020 and 30% in the two previous years. The number of sellers with $500 million to $1 billion of assets under management nearly doubled compared with those in the last two quarters. 

In contrast, the share of transactions among firms in the $251 million to $500 million range continued to drop sharply, from 27% in 2019 and 22% in 2020 to just 12% in the first quarter. The compression in this segment, however, is likely to be short-lived. DeVoe & Co. expects the number of sellers in this range to grow over the next several quarters as outlined earlier. 

The report said a handful of leading buyers will continue to acquire multiple firms per year — and likely pay the highest valuations. For the first time this year, it said, some of these consolidators consolidate and merge into one another. And the META-RIAs will continue to separate from the rest of the pack across many dimensions.

At the same time, the industry may see more traditional RIA buyers enter the space — for example, an acquirer run by advisors. The report noted that many sellers are increasingly curious about exploring options beyond the mega firms.