While overall deal volume decreased in the second quarter of 2023, there was a significant increase in large RIA investments, according to ECHELON’s second quarter, 2023 RIA M&A Deal Report.
Overall, there were 65 transactions announced in the second quarter, compared to 75 in the first. This apparently is in line with historical trends as the second quarter is typically the least active period for deal announcements, the report notes.
Perhaps the bigger story, however, is that nearly half of all transactions in 2023 involved a target with over $1 billion. In fact, 38 transactions involving targets with more than $1 billion in AUM were reported in the second quarter, representing a 15% increase from the 33 transactions reported in the first quarter.
“Firms with $1 BN+ in assets are especially attractive to acquirers as they tend to have experienced management and established processes and platforms,” ECHELON notes. This growth can also be attributed in part to the recovery in the financial markets causing some of the firms that may have dipped below the $1 billion threshold to move back above it in recent months, the report further observes.
While ECHELON’s projection for total 2023 deal volume is lower than it was at the end of the first quarter, the firm remains optimistic that activity will increase in the second half of the year. If the trends persist, approximately 300 transactions will be announced in 2023, compared to 341 in 2022.
Yet, despite the total transaction count decreasing, the average assets per deal is expected to increase. To that end, 2023 year-to-date average assets per deal equals approximately $1.8 billion, exceeding 2022 levels and remaining mostly in-line with the average observed at the end of the first quarter.
“Even if markets remain relatively flat for the rest of 2023, average assets per deal is on track to finish at the second highest level recorded,” the report notes.
ECHELON further observes that the pool of buyers involved in these large transactions continues to be more varied than the buyer pool for the broader wealth management market. Acquirers in these larger deals included a global investment bank, several private equity firms, and the wealth management arm of an insurance platform.
The top RIA consolidators also continued to announce large deals. CI Financial, CAPTRUST, Carson Wealth, and OneDigital all announced transactions involving $5 billion in assets or more. OneDigital’s acquisition of Huntington National Bank’s 401(k) and retirement advisory business is an example of an RIA capitalizing on the recent turmoil in the midsize bank sector, the report notes. Prominent mid-sized RIAs are also completing deals with new financial partners, helping to increase average assets per deal.
PE Interest
Meanwhile, the buyer makeup in the broader wealth management M&A market continues to be dominated by private equity-backed RIAs. In the second quarter alone, private equity acquirers made direct investments in wealth managers with assets totaling nearly $351 billion—a level that is more than double the same figure from 2022.
According to ECHELON, the large increase is due to several of the most active wealth management consolidators taking on new private equity partners. “These new sponsors remain attracted by the significant growth opportunity that still exists for these firms as market forces continue to favor consolidation in the industry,” the report observes.
Notable transactions include CI Private Wealth selling a 20% stake to a consortium of investors, WEG receiving a $250 million investment from Stone Point Capital, and Leonard Green & Partners executing a minority investment in Hub International.
In the second quarter of 2023, nearly 86% of all disclosed transactions were completed by strategic acquirers, who have now announced 120 total transactions so far in 2023. Of the 56 deals announced by strategic acquirers in the second quarter, 73% involved firms with private equity backing.
Financial acquirers announced nine deals in the second quarter, two fewer than the previous quarter. Financial buyers’ total transacted AUM decreased by 30% in the second quarter, while the strategic acquirer category increased its total AUM transacted by 41% or $270 billion compared to the previous quarter.
WealthTech Activity
Interest in WealthTech also continues, with deal activity increasing to 30 transactions in the second quarter. Notable transactions include Mariner Wealth Advisor's acquisition of Spring and Altruist’s $112 million capital raise led by Insight Partners.
According to the report, Mariner Wealth’s acquisition of Spring positions the firm as a full-service solution for advisors and their clients, expanding their technology offerings and complementing their retirement services. Additionally, Mariner will be able to gain leverage and data insights from their online portal and financial wellness business.
