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M&A Activity Remains Hot and Heavy

Managing a Practice

Any thoughts that the pandemic might slow the pace of M&A activity may have been a bit premature, as Raymond James’ acquisition of Northwest Plan Services becomes the latest in a string of deals.    

Raymond James announced Dec. 10 that it has reached an agreement to acquire the Seattle-based independent provider of retirement plan administration, consulting, actuarial and administration services. The transaction is expected to close before Dec. 31, 2020.

According to the announcement, the addition of NWPS allows Raymond James to expand its retirement services offerings—including retirement plan administration services—to advisors and clients, which is particularly timely, given the forthcoming emergence of pooled employer plan arrangements under the SECURE Act.  

“We are both people-oriented companies that place a high priority on excellent service. Adding this valuable retirement capability for our advisors and their clients while providing NWPS with Raymond James’ scale enables managing the end-to-end experience for plan sponsors and plan participants,” notes Paul Reilly, Raymond James’ Chairman and CEO.  

The approximately 160 NWPS employees will be retained in the firm’s current locations and NWPS will continue to operate under its current name. The firm currently has over 400,000 participants with more than $35 billion in plan assets.

M&A Transactions

As for overall activity, the latest Wealth Management M&A Transaction Report from Fidelity reveals that November was the single largest month for M&A activity by a significant margin since the firm began tracking activity in 2016.

With a total of 15 RIA deals representing $45.7 billion in client AUM, November surpassed the highest monthly AUM record by $21.3 billion, which was previously set in April 2019, the report notes. Nearly half of November’s deals involved sellers with $1 billion-plus in client assets, totaling 91% of the month’s AUM.

Moreover, Fidelity notes that, in the last six months, RIA AUM volume has nearly eclipsed the total volume seen in all of 2019, with 80 deals representing $134.5 billion. Year to date, there have been 112 transactions, which is only two less than the same period in 2019. Plus, AUM volume has already exceeded 2019’s record $150.3 billion, with $169.7 billion in the first 11 months of 2020 (+13%).

“M&A activity, highly visible for some time, reflects dramatic and accelerating change in the independent wealth management space,” says Scott Slater, Fidelity Institutional VP of practice management & consulting. “Not only was November the largest single month of activity as measured by AUM, but AUM volume in the last six months nearly eclipsed all of 2019, which itself was a record setting year.”

Toronto-based CI Financial, which completed its first U.S. deal in the second half of 2019, announced four in November, representing $9.1 billion and including its single largest acquisition to date—the $4.7 billion Dallas-based RGT Wealth Advisors, the report further notes. Moreover, Fidelity observes that, in the last 12 months, CI Financial has completed nine deals, took minority stakes in two $1 billion-plus firms, and was recently listed on the New York Stock Exchange. 

Meanwhile, Focus Financial and its partner firms also continued to be active with three transactions in November, including the acquisition of $8.9 billion outsourced CIO provider CornerStone Partners, representing a strategic shift in Focus Financial’s model. 

Additionally, two large cross-border transactions were announced with the sale of $11.2 billion Forbes Wealth Management Holdings to Stanhope Capital Group, and the sale of $12 billion Sanctuary Wealth to Milan-based Azimut Group. At the same time, it has been a relatively quiet year for broker dealer transactions, with Bernard Herold merging with Lantern Investments to form Herold & Lantern, representing only the fourth small scale BD transaction in 2020, the report further notes. 

“We’re seeing a significant amount of large deals as well as new investors continually entering the space. It’s important for every firm considering an eventual sale to develop a clear strategy, including timing and desired buyer characteristics, in order to capitalize on today’s opportunity,” Slater further emphasizes. 

2021 Outlook

Looking to the future, PwC’s Asset and Wealth Management Deals Insights: 2021 Outlook suggests that the strong pace of deal activity will continue. It notes, for example, that recent deal activity within the recordkeeping space, such as Empower’s acquisitions of the recordkeeping businesses of Mass Mutual and Fifth Third Bank, illustrates a confluence of drivers that could spur even more deals ahead.

PwC explains that these drivers include:

  • increasing pricing pressure as leading players continue to price aggressively to win new business away from competition; 
  • technology and workflow capabilities which help drive productivity; 
  • opportunities in adjacent sectors, such as HSAs, rollover IRAs, benefits admin and retirement plan advisory; and 
  • continued interest from PE firms given the stable fee-based cash flows from recordkeeping offerings.