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RIA M&A Activity on Pace for 5th Consecutive Record Year

Despite slightly lower volume in the third quarter of 2017, merger and acquisition activity in the RIA industry is on pace for a fifth consecutive record year, with expected deal volume for the full year anticipated to reach 169 transactions, a 23% increase over 2016's record year.

In addition, the average transaction size of $1.1 billion for the first three quarters of 2017 is the highest of the past seven years, according to ECHELON Partners' Q3 2017 RIA M&A Deal Report

With their research projecting a continued increase in M&A activity across the board, Dan Seivert, CEO of ECHELON Partners, explains that, "The aging advisor population combined with consolidation at the top end of the industry is leading to increasing volumes of deals, both in total numbers as well as in assets."

RIA breakaways also continue to maintain their push in the face of decreasing wirehouse recruiting bonuses in a post-DOL rule environment. Through the third quarter, 302 breakaways had taken place with an additional 88 expected in the fourth quarter, ECHELON's forecasts show. Moreover, the average size of breakaways continues to climb, up 7.1% over 2016 levels to $300 million, with 15 $1 billion+ breakaways through the third quarter.

The report explains that recruiting bonuses of 200% to 400% of gross revenue with a duration of 7 to 10 years had become the standard tool for wirehouse recruiters, but in light of the fiduciary rule, this activity has come under fire with usage decreasing, resulting in breakaway volume remaining high.

Noting an accelerating trend, the report cites the acquisition of Focus Financial's $100 billion AUM by KKR and Stonepoint Capital as one of the industry's largest "mega-deals" made by private equity investors. "As the pipelines of many consolidators and private equity buyers become full, these firms increasingly are seeking and finding established businesses that fit an attractive profile for their investment criteria of large deals," the report notes.

In fact, well-capitalized, strategic buyers and consolidators have accounted for 53% of RIA purchases thus far in 2017, 33% greater than in 2016, according to ECHELON.

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