While there was a modest year-over-year decline, annual deal volume in 2023 eclipsed the 300 mark first achieved in 2021, reaching the second-highest annual total recorded, according to an early preview of ECHELON Partners’ 2023 RIA M&A Deal Report.
In fact, annual wealth management deal volume reached 321 announced transactions, maintaining a five-year compound annual growth rate (CAGR) of 12.1% from 2018 to 2023. The 321 transactions, however, reflects a modest 5.9% decline from 2022’s record total of 340 deals.
This activity was in the face of high borrowing costs as the federal funds rate surged to more than 20x March 2022 levels, peaking at 5.5% in July 2023, ECHELON notes. What’s more, the collapse of Silicon Valley Bank and the regional banking crisis that followed contributed to an even more stringent financing environment, fostering a risk-off attitude across markets. Despite this, wealth management M&A persisted and remained a bright spot in the general M&A market, underscoring the strong fundamentals of the industry, the firm suggests.
“Readers should note that a more restrictive financing environment has led to a decrease in general M&A activity, however the wealth management industry has remained resilient due to factors such as fierce buyer competition, business model resiliency (wealth managers are tasked with protecting clients in times such as this), and demographic tailwinds,” the firm stated in the report.
Overall, Wealth Enhancement Group, Mercer Advisors, and CAPTRUST continue to be the most active buyers. The RIA buyer category was involved in 71% of all announced transactions.
Perhaps not surprisingly, private equity-backed players that run programmatic acquisition campaigns continue to be the most active acquirers in the industry. In 2023, RIAs were involved in 228 transactions, amassing a total of over $466 billion in assets, the report shows.
Insurance companies also played a substantial role in the year’s activity, acquiring $178 billion in assets. This uptick, according to ECHELON, was driven by Aon’s acquisition of NFP’s $75 billion in assets, Canada Life Assurance Company's acquisition of Investment Planning Counsel’s $85 billion in assets, and by active dealmaking by Hub International Limited.
In total, strategic acquirers announced 89% of transactions in 2023. Financial acquirers, especially private equity firms, remain essential to the industry’s largest deals, the report further observes. To that end, certain serial RIA acquirers, namely Pathstone and Mercer Advisors, received multiple rounds of private equity investment throughout 2023.
Among the most significant transactions announced throughout 2023 include The Carlyle Group’s investment in CAPTRUST, which had acquired 29 firms since receiving their investment from GTCR in 2020 and will add to this total using the capital from Carlyle’s investment. Meanwhile, in February, Focus Financial Partners was taken private by Clayton Dubilier & Rice in an all-cash transaction that valued Focus north of $7 billion, representing a 36% premium on their share price.
Overall, financial acquirers invested directly in 35 firms in 2023, accounting for nearly 11% of the year’s total deal volume and surpassing their 2022 total. Yet, despite the low volume relative to strategics, financial acquirers transacted over $2.5 trillion in assets—pointing to the significantly larger average deal size for financial acquirers, the report further notes.
Average Deal Size
In fact, average deal size and minority transactions continue to grow. In 2023, the average assets per transaction experienced 3.9% year-over-year growth. ECHELON notes that this increase was propelled by a succession of $10-20 billion transactions announced throughout the year, since the overall quantity of deals involving at least $1 billion in assets remained relatively stable compared to 2022.
Another driver of deal size was the “heightened creativity” in deal structures, adopted by private equity firms seeking to get deals across the finish line in the face of higher borrowing costs, the report observes. For instance, structured minority investments, with features such as paid-in-kind and preferred distribution rights, have become more popular with buyers seeking to pursue deals in an environment that has seen leveraged buyouts more difficult to complete.
Minority investments, meanwhile, have grown at a 45% annual rate since 2019. Of the 35 minority transactions announced in 2023, totaling $2.2 trillion in transacted assets, nearly 63% were consummated by a private equity buyer. ECHELON notes that this topic will be explored more in its annual report.
Finally, driven by the need to future-proof technology and develop comprehensive end-to-end platforms, ECHELON reports that the WealthTech industry experienced an 8.3% increase in deal volume compared to 2022.
