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What You Need to Know

  • Both Echelon Partners and DeVoe & Co. reported a drop in M&A deals from a strong Q1.
  • But DeVoe says overall first-half activity is up, and this year is on track to eclipse last year's all-time high.
  • Strategic buyers or consolidators have been the most active acquirers so far in 2021.

In two new reports, Echelon Partners and DeVoe & Co. discuss the slowdown in RIA merger-and-acquisition activity in the second quarter and several trends that emerged during the period.

Echelon Partners identified 54 deals in the second quarter, off the record-setting 76 deals in the previous quarter. 

The firm said it expects deal activity to pick up as the second half gets underway, spurred by sellers looking to take advantage of buoyant markets and eager to avoid any change in tax policy.

DeVoe counted 43 RIA transactions in the April-to-June period, bringing the first half total to 101 deals.

The six-month period is 51% above the same period in 2020, according to DeVoe. It said 2021 activity can be expected to eclipse last year’s all-time high of 159 transactions.

Echelon Partners says it tracks all RIA deals using a proprietary methodology.

DeVoe focuses only on what it calls “true” RIAs and transactions of $100 million or more in assets under management. It screens out the SEC-registered hedge funds, IBDs, mutual fund companies and other companies that do not operate as traditional RIA firms, as well as the “advisors joining RIAs” category, unless there are important developments.

DeVoe’s analysis pointed to key drivers of the continued acceleration of activity it expects. Valuations are at an all-time high, luring previously reluctant sellers to the negotiating table. Seasoned acquirers are dangling strong value propositions to attract more sellers to the negotiating table.

Moreover, the pandemic shocked many advisors into crafting succession plans, and many realize that an internal sale is not an option, it said.

Consolidators continue to be the industry’s top acquirers; in the first half, they accounted for 41% of announced transactions. Five consolidators initiated 30 of the 37 acquisitions in the first six months of the year. 

Mercer Advisors made a record 10 announcements, compared with the firm’s seven total transactions in 2020. Beacon Pointe Advisors, Captrust, Focus Financial Partners and Wealth Enhancement Group rounded out this group of acquirers.

Midsize sellers, firms with between $500 million and $1 billion in assets under management, are now more active than ever, according to DeVoe. The 25 first-half transactions in this segment compared with 11 during the same period last year.

Midsize sales accounted for a quarter of all first half transactions, their highest share since 2013 and a spike from 17% in all of 2020.

The average seller size remained at just over $1 billion-plus, on par with the strong 2020 average. 

Minority Transaction Activity Slows

Echelon Partners reported that 2021 is on pace for 18 minority transactions. This would be fewer than the record 26 minority deals recorded last year, but would still be well above the historic levels for this kind of transaction. 

It noted, however that the minority deal category is likely significantly underrepresented. The firm estimates that deal volume is 25% to 50% higher, given that minority investments are not required to be disclosed to clients.

The top three minority deals transacted in the second quarter as measured by assets under management were conducted by private equity investors: Leonard Green’s investment in Mariner Wealth Advisors, Charlesbank Capital Partners’ investment in Lido Advisors and Pritzker’s investment in Steward Partners. 

These three deals alone accounted for more than $50 billion in assets under management transacted in the second quarter.

Strategic buyers or consolidators have been the most active type of acquirer so far in 2021, replicating a trend that was observed from 2015 to 2018, the analysis showed. Since the start of the year, these buyers have announced 42% of all transactions. 

The average assets under management across these transactions equaled $1.9 billion, which is more than three times the average deal size announced by a firm in the RIA category — though still not close to average size of the deals announced by banks, $3.8 billion, or those in the other category (private equity, asset managers, insurance companies, IBDs), $3.8 billion.