After a fifth consecutive year of record retirement advisory firm M&A activity, could the industry be taking a breather?
In fairness, things have been running at a fast pace, with 2021’s pace (76 reported transactions) more than doubling the total from any previous year, according to Retirement & Wealth Advisory Q2 2022 Spotlight from Wise Rhino Group. The report notes that there were 28 and 32 transactions reported in 2019 and 2020, respectively. Moreover, in the past decade 187 retirement advisory firms have been acquired.
Where We Are
That said, the report acknowledges that based on announced M&A transactions through the end of April 2022, announced retirement advisory deal levels are down as compared to the first quarter of 2021. While it’s early—too early to project a downward trend—the report cites several factors that have been noted in discussions with retirement aggregators that may account for this sluggish start:
- After a very active M&A year in 2021, some firms are now focused on the task of integrating their newly acquired advisory firms.
- Many noted the continued commitment of resources toward the development of centralized platforms and processes, as well as the search for talent to support their business in key areas.
And then, of course, there are the macro factors: the impact(s) of the Russia-Ukraine conflict, along with rising prices, supply chain issues and volatile markets, not to mention the lingering effects of the global pandemic. “The impact on the macro business environment has both near and midterm implications and could impact activity for a while,” according to the report.
All that notwithstanding, Wise Rhino says that “interest in retirement and wealth advisory M&A remains high and competition is strong for acquisition targets” that and discussions with many of the retirement aggregator firms reflect that M&A “will continue to be core to their growth strategy and most have full pipelines and expect 2022 to be another very active year.” In fact, Wise Rhino Group says its current sell-side client roster is as full as the same point in 2021.
Where We’ve Been
The authors note that many of the retirement & wealth advisory Firm acquisitions over the past five years have been executed by these seven firms: CAPTRUST, HUB, OneDigital, NFP, Marsh McLennan Agency, Sageview and most recently World Insurance with its PensionMark pickup. “Each of these Firms strategically have focused first on establishing multi-disciplinary office hubs within each of the major regions, and then filling their advisory talent within each of the U.S. major markets,” the report explains, noting that for the insurance brokerage firms, having retirement and wealth talent available for cross-sell opportunities is critical to the growth of each of their verticals.
The report mentions an emerging consensus from the retirement and wealth advisory buyers that “we may have reached an equilibrium between sellers and buyers, after many years of increasing valuations.” However—and unlike the insurance brokerage segment and many of the wealth aggregators—the report says that most of the scaled retirement firms are still looking to acquire to fill gaps in major markets, where many have strong benefits and/or property & casualty hubs. Moreover, the report notes that, in addition to geographic expansion, the need for overall talent in all areas remains “very high”—and that struggle for next generation talent is ubiquitous in a tight labor market with upward wage pressure. “These factors will most likely play a role in the valuation stability of the segment in the near future.”
The Road Ahead
Citing discussions with many of the scaled retirement advisory firm leaders, the authors conclude that the mid-term and long-term view remains “overwhelmingly positive,” with retirement and wealth M&A remaining a “critical component of their overall growth strategy.”
The report notes that in addition to the acquisition of larger “regional hub” retirement advisory firms, they expect that retirement aggregators will have a renewed focus on sub acquisitions and market penetration going forward.
The report predicts that buyers will most likely continue to evolve around how they analyze sell-side firm opportunities, and that revenue composition and growth trend lines will become more important, “with a bias toward new client acquisition growth versus same client market growth.” It concludes that sellers will also have to focus on developing a compelling story and demonstrating a strong record, while it opines that “a straightforward value-added story of organic growth engaged talent, and unique capabilities will be needed to achieve premium valuations.” The authors note “demand will still outweigh supply, but it will take more to stand out.”
