The pace of RIA merger and acquisitions dipped a bit from Q1 2015’s record pace, but large RIAs sold in “record numbers,” according to a new report.
There were 33 transactions in the first quarter of 2016, a slight dip from the record 37 deals in Q1 2015, according to just-released research by DeVoe & Co.
Large RIAs, those managing assets between $1 billion and $5 billion, comprised 21% of the Q1 2016 transactions, nearly double the average 11% of total transactions this group performs in an entire year, according to the report.
That spike could potentially be the indirect result of a similar spike among their larger peers in 2015. The report explains that, “as owners of large Established RIAs observed the surge in ‘mega-deals’ (sellers with more than $5B in AUM), many may have gained greater comfort with the concept of selling to a favorite suitor. Essentially, these larger transactions served to validate the concept of selling.” Based on that logic, the report’s authors note that “one might expect an increase in sales of mid-sized firms over the next year.”
Activity Drivers
RIA M&A activity continues to be driven by “high interest from a wide breadth of well-financed acquirers, the aging demographics of RIA owners, and the potential strategic power of combining RIAs,” DeVoe says. “Over time, the industry’s lack of succession planning will likely become a leading driver for RIA sales, as a growing number of retiring principals are unable to sell their equity internally.”
The average assets under management of established RIA sellers continued their “upward trajectory,” exceeding $1 billion, according to the report, which notes that banks were active acquirers, maintaining the momentum of re-engaging in RIAs as a growth/cross-sale strategy.
During the first 90 days of 2016, banks made three high-profile transactions, which accounted for more than the total deals they made during the entire years of 2013 and 2014, according to DeVoe, and “acquiring at three times the pace that they have previously over the last several years.”
RIA firms themselves demonstrated conviction for the strategic power of scale by becoming the dominant acquirer category. In the first quarter of the year, RIAs won the ongoing tug-of-war versus the consolidators as the acquirer of choice, and acquired nearly two-thirds of Established RIAs sold during the period.
While acknowledging that one might anticipate another record year of activity, the report concludes that, “With so many buyers, it’s a good time to be a seller. One can’t help but wonder, however, if there will eventually be an inflection point when the pool of buyers simply can’t keep up with the growing numbers of sellers.”
The DeVoe RIA Deal Book tracks all mergers, sales and acquisitions of firms that are registered with the Securities and Exchange Commission as a RIAs. The report includes all transactions identified with over $100 million in AUM.
