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Wealth Management M&A Activity Still on Pace for Record Year

Business Growth Strategies

After reaching an all-time high in the last quarter of 2021, total wealth management M&A activity decreased for the second straight quarter in 2022, according to boutique investment bank ECHELON Partners.

Still, M&A activity in the first half of the year remains elevated relative to historic trends and keeps 2022 on pace to be another record-breaking year barring a significant slowdown in deal activity in the second half, according to ECHELON’s  second quarter 2022 RIA M&A Deal Report (free registration required). 
Highlights of the report include the following.

Quarterly Deal Volume Declines Again but Remains Elevated. There were 87 deals announced in 2Q22, 42 of which were announced in June. While this marked a decrease from the most recent periods, the volume makes Q2 the third most active quarter since ECHELON began tracking the data.

Strategics and Consolidators Continue to Execute on their M&A Pipelines Despite Volatile Markets. ECHELON notes that 37% of deals in Q2 and 46% of deals year to date were made by strategic acquirers and consolidators. In all, there were 33 more deals in the second quarter of this year than in Q2 2021, a 61% increase year over year. “This level of commitment from experienced acquirers means that deal structures and valuations have remained relatively attractive for sellers,” ECHELON notes.

Continued Momentum and Buyer Demand Push M&A Toward Another Year of Growth. Elevated activity in the first half of the year means that ECHELON still expects 2022’s deal volume to match or exceed 2021’s record-breaking total, even with conservative estimates for the second half of 2022. Overall, ECHELON expects a total of 308 transactions in 2022.

Average AUM per Deal Continues to Decline as Small Transactions Become More Prevalent. The average AUM per deal continued to decline from last year’s record-breaking level—the 2022 YTD average represents a 12% decline in the average AUM per transaction compared to that of 2021, ECHELON says. There were 34 deals involving over $1 billion in AUM announced in Q2, which is a 21% decrease relative to Q4 2021’s total of 43 $1 billion-plus deals. This decrease in $1 billion-plus deals is one contributing factor to the YTD decrease in average AUM per deal, ECHELON notes. Of the deals that were announced in Q2, 56% of the acquired firms had less than $1 billion in AUM. The average AUM transacted in these deals was $380 million, indicating that the smaller subsect of RIAs are continuing to participate in M&A. 

The Wealthtech Market Remains Active. The industry’s top Turnkey Asset Management Programs (TAMPs) were all active acquirers this quarter, ECHELON reports, as they seek to scale their current client bases and buy complimentary service offerings.

Industry Tailwinds Continue to Outweigh Potential Macroeconomic Hindrances. M&A volumes remain strong, indicating broad commitment to transactions, ECHELON reports. “Any future slowdown, driven by macroeconomic headwinds, will likely be transitory and result in pent-up demand in future years,” they note. “We continue to believe we are in the early innings of a long cycle of RIA consolidation.”