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Despite Quarterly Declines, RIA M&A Still on Pace for Record Year

Business Growth Strategies

Total wealth management M&A activity decreased for the third consecutive quarter of 2022, but total annual levels are expected to surpass 2021’s record year, according to the latest ECHELON Partners’ RIA M&A Deal Report. 

Despite a global slowdown in M&A, which has been spurred by the rising interest rate environment and geopolitical instability, deal activity in wealth management has remained relatively resilient, the firm explains in its third quarter report.

There were 84 deals announced in the third quarter, which was a decrease of 7.7%, but a level that brings the deal total in the past 12 months to 368, making it the most active 12-month period since ECHELON began tracking the data. “The supply of willing buyers and sellers remains more than ample as entrepreneurs continue to look to M&A as a key component of their long-term succession plans and as prominent strategic acquirers remain eager to complete deals despite broader economic volatility,” the report states.

Overall, ECHELON estimates there will be 345 deals announced in 2022, representing a 12.4% increase over the 2021 record.

Average Deal Size Falls

Meanwhile, the average AUM per deal declined by 17% from last year’s record-breaking figure, falling to $1.7 billion per deal, which is roughly in-line with the 2020 figure, the firm notes. In total, there were 33 deals involving over $1 billion in AUM announced in the third quarter, marking a 35% decrease relative to the third quarter, 2021 total of 51 $1 billion-plus deals.

This decrease is one contributing factor to the year-to-date decrease in average AUM per deal, the report explains. Of the deals that were announced in the third quarter, 43% of the acquired firms had less than $1 billion in AUM. The average AUM transacted in these deals was $389 million, showing that buyer interest in smaller opportunities remains very high, ECHELON observes.

Overall, the firm estimates that the number of transactions involving over $1 billion in AUM is expected to fall by approximately 8.3%, from 145 in 2021 to 133 at year-end 2022. A large portion of this decline may be due to the decrease in AUM attributed to market performance in 2022, the report notes.  

Most Active Acquirers

Unlike the first half of the year, when a significant portion of the top transactions were announced by private equity investors, banks, and other relatively low volume acquirers, half of the third quarter’s top transactions were deals announced by some of the most active strategic acquirers, ECHELON further explains. Overall, strategic acquirers and consolidators continue to lead all buyer types in deal activity, registering 42% of deals so far in 2022.

Mariner Wealth Advisors was involved in two of the top 10 RIA acquisitions in the third quarter with their acquisitions of The Financial Services Network in July, and Heber Fuger Wendin Investment Advisors in August, the report notes. Mariner Wealth has announced 10 deals in 2022 thus far. Creative Planning has also been busy, adding Wipfli Financial Advisors to the fold in August—an RIA with $5 billion in AUM.

ECHELON has also observed continued activity of platform formations by private equity firms, who remain “attracted to the industry's long-term secular growth dynamics, which will continue to support deal volume in upcoming quarters.”

In fact, private equity firms’ direct investments in companies totaled more than $80 billion in AUM during the third quarter. Two notable private equity transactions were Oak Hill Capital’s recapitalization of Kestra Holdings, and Reverence Capital Partners’ strategic investment in SEIA.  

Experienced Buyers. Meanwhile, experienced buyers that have engaged in more than two acquisitions since 2016 remained active throughout the third quarter, as they “still see opportunity for inorganic growth despite turbulence in the financial markets,” the firm notes.  

According to the report, 190 of the 269 deals announced in the first three quarters of 2022 involved an acquirer who has completed at least two deals this year. Merit Financial Advisors, which announced three deals in the third quarter and Hub International Limited which announced two deals, were both absent from the “most active buyers” list in the first two quarters of 2022, the report observes. They displaced Cerity Partners, a leader in the first half, 2022 dealmaking that did not announce any transactions during the third quarter.

WealthTech Remains Active. Demand for WealthTech solutions remains high, as customers continue to demand more personalization and access to seamless technology from their wealth managers. Enabling these capabilities is a key component of many of the offerings of the fastest growing WealthTech firms. Consequently, large turnkey asset management platforms (TAMPs) are buying WealthTechs, as the race to build the one-stop solution for RIAs, broker-dealers and investment adviser representatives continues to ramp up, they report.

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