RIA M&A deal activity showed no signs of slowing down in 2018, cementing a sixth straight record year in the marketplace, according to Echelon Partners.
The firm’s fourth quarter 2018 RIA M&A Deal Report reveals that the 181 total transactions in 2018 more than doubles the 90 deals recorded in 2013. In addition, the 44 deals occurring during the fourth quarter were the highest fourth-quarter count since the firm began tracking that data.
This sustained activity came amid what was a “tumultuous year for financial markets,” which began with record optimism only to deteriorate as global growth subsided and geopolitical issues surfaced, the report observes. This was particularly evident in the fourth quarter, which experienced a 20% drawdown in U.S. equities.
Even with this uncertainty, RIA M&A deal activity, however, did not show signs of weakening in 2018, the firm notes. In fact, to the contrary, deal activity strengthened, which “could be an indication that RIA executives are looking to hasten plans for liquidity events ahead of what could be an impending recessionary environment,” Echelon suggests. Accordingly, this may bode well for a strong start to 2019, as “sellers rush for the exits,” the firm further observes.
Let’s Make a Deal
2018 also marked the third consecutive year of more than $1 billion average AUM transacted. Average deal size grew to over $1.3 billion – a 31% increase over the average in 2017. Moreover, nearly $370 billion of AUM – or 7% of industry assets – experienced M&A activity in the RIA industry in 2018.
During the fourth quarter of 2018, there were eight deals of $1 billion or greater, with the largest transaction being Robert W. Baird & Co.’s acquisition of Hilliard Lyons, expanding its $200 billion AUM by 25% and adding 380 advisors across 11 states, the report notes.
The report further notes that strategic buyers and consolidators are rapidly expanding their market share from pure RIA consolidators, covering 47% of the market. “The growth of deep-pocketed financial sponsors backing RIA buyers with access to capital, operational expertise and deal acumen is a trend expected to continue on the back of recent M&A successes,” it states.
Breakaway activity also continued to grow, reaching 147 in the fourth quarter – 6% higher than the 139 breakaways seen in the third quarter of 2018. As the movement to independence endures, this activity is expected to remain strong. A sustained upward trend in advisory teams leaving wirehouses citing “dissatisfaction with culture” over the past year contributed to a 21% increase in the fourth-quarter 2018 figures compared to the same period in 2017, the firm notes.
“Advisors possibly fearing broker protocol-related legal backlash have continued to gain confidence after witnessing successful moves by large $1BN+ teams, driving Q4 breakaway activity 49.3% higher than the historical average for fourth quarter activity since 2013,” the report states.
Conversely, the report observes that this breakaway trend may slow in the coming quarters if advisors become weary of taking on additional risk amid significant market volatility and fears of a recession.
