Mergers and acquisitions of registered investment advisor firms realized a record start during the first quarter of 2017, with 44 transactions executed, according to research conducted by DeVoe & Company.
That represents a 29% increase from the first quarter of 2016, when 34 deals were consummated. This continues a trend of record levels of mergers and acquisitions during the last three years, with increases occurring at both established RIAs selling and breakaway advisors joining RIAs.
One factor is that RIA owners have recently shown a greater willingness to relinquish control over their companies in exchange for the benefits of being part of a larger organization. Moreover, the authors contend that selling to a larger firm helps solve some of the “operational fatigue” that many advisors feel as they deal with regulatory issues, technology and other non-core activities.
The expiration of a large number of forgivable loans that were written following the stock market decline has apparently contributed to the trend of advisors breaking away from wirehouses and joining RIAs. DeVoe believes that the “heightened activity” due to this circumstance will likely continue for at least another year.
The report reviews the various “waves” that have occurred over the past 15 years, and points to private equity-backed RIA serial acquirers and sub-acquisitions as the latest waves to contribute to accelerated consolidation. DeVoe notes that sub-acquisitions have quadrupled since 2014 and now comprise 22% of all established RIA transactions. With parent companies providing their affiliates with the capital and M&A experience to become acquirers themselves, this wave could be profound, the report predicts.
As to what to expect for the future, DeVoe anticipates that RIA merger and acquisition activity will continue at a record pace, with some advisors using a “wait and see” approach amid a backdrop of change, while others are moving forward with the sale of their firm in advance of their initial plan.
