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Industry Spotlight > Mergers and Acquisitions

RIAs Expect M&A Surge to Continue in 2022 

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What You Need to Know

  • Sixty-three percent of RIAs surveyed said they expect merger-and-acquisition activity to continue to increase this year.
  • The COVID-19 pandemic accelerated activity, focusing advisors on their goals, mortality and lack of succession plans.
  • Appetite for acquisition increases with firm size: 90% of firms with over $3B plan to make an acquisition in the next two years.

Sixty-three percent of RIAs in a recent survey said they expect merger-and-acquisition activity to continue to increase this year, DeVoe & Co. reported this week. Forty-seven percent of advisors said activity would rise somewhat, and 16% said it would do so considerably.

Why? RIAs cited a variety of reasons, including high valuations, aging of firm founders and proliferation of serial acquirers.

A third of advisors in the survey said they expect activity to maintain its current pace, while just 4% expect a decline in activity.

Contrast the new findings with those of a year earlier, gathered in the early days of the pandemic. Seventy-five percent of respondents expected a decline in M&A activity, and none projected an increase.

In fact, the pandemic accelerated activity, the new report says, focusing advisors on their goals, mortality and lack of succession plans. Many decided to sell externally.

Thirty-nine percent of respondents in the new survey said they expect valuations to increase in 2022, even as these are already at record levels. DeVoe & Co. suggested that they may expect well-financed acquirers to bid one another up, or that synergies remain to be unlocked. 

Fifty-three percent of advisors said valuations have plateaued and will hold steady this year, while 8% anticipated an imminent decrease as valuations, in their view, have exceeded appropriate norms.

DeVoe & Co. conducted the survey between Sept. 2 and Oct. 28 among 131 senior executives, principals or owners of RIAs ranging in size from $100 million to more than $5 billion in assets under management.

Acquisition Activity

Sixty percent of RIAs surveyed said that they plan to grow through acquisition in the next two years. DeVoe & Co. noted that this 8-percentage-point increase over last year’s survey came after several years of steady decline. 

Appetite for acquisition increases with firm size, the survey found. Ninety percent of firms with upward of $3 billion indicated that they plan to make an acquisition over the next two years. 

According to the report, many RIAs with between $3 billion and $10 billion feel constrained to expand their business in order to compete with “META-RIAs” — a group of some two dozen mega-RIAs that will grow faster, operate more efficiently and provide a wider variety of services than smaller outfits.

Farther down the food chain, just 38% of firms with less than $500 million said they expect to acquire another RIA. This is about four times the number that reported having made an acquisition in the previous two years, according to the survey.

The chief motivator for M&A? Seventy-five percent of advisors said acquiring talent was their main driver, just ahead of 74% who said it was increasing clients and assets.

The study pointed out that acquiring and retaining talent these days is increasingly challenging. In a moment when voluntary workplace departures are at a 10-year high, the average firm has a 30% increased likelihood of losing a given employee this year compared with previous years.

Among other priorities for acquiring another firm, half of respondents cited expanding services and capabilities, 47% said extending infrastructure and 43% said they wanted to expand their geographic footprint.

“The good news is that RIAs are thinking strategically about M&A,” the report said.