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Record-Breaking RIA M&A Deal Volume Expected to Continue

A new report finds that the third quarter deal volume remains on pace to make 2018 the sixth consecutive record-setting year for wealth management deals.

According to ECHELON Partners’ 3rdQuarter 2018 RIA M&A Deal Report, 43 transactions were completed during the third quarter, pointing to a strong close for the year with 183 total deals forecasted to be completed in 2018, which would be a 9% increase from last year.

RIA transactions in the third quarter were 30% higher than the third-quarter average since 2013, resulting in the highest third quarter of RIA M&A transactions since ECHELON began tracking this data, the report notes. In addition, third-quarter breakaway activity soared to 139 departures, marking the second highest total since 2013 and a 13% increase from the previous quarter’s 123 breakaways.

“An advisor population approaching retirement, prevalent financing options, and encouragement from precedent breakaways have all contributed to 3rdquarter breakaways exceeding the quarterly average of 107 seen from 2013 to second quarter 2018,” the firm explains.

Breakaway activity is expected to continue for the foreseeable future as advisors actively seek independence and liquidity in the midst of an aging business cycle. “With the flight to independence continuing to play out amongst the advisor population and with lucrative compensation packages being offered by wirehouses to new advisors, breakaway activity can be expected to continue at a feverish pace,” the firm notes.

In addition, the firm notes that the increased occurrence of large, successful $1 billion-plus breakaway deals has reinforced advisor confidence in their own plans to transition to new firms.

Exploding Deal Size

The average deal size is also on pace to exceed $1.5 billion for the first time. The report shows that the third quarter of 2018 pushed the annual average transaction size to $1.57 billion — a 55% increase over 2017’s average deal size. Additionally, the average size of consummated transactions, as measured by the size of sellers’ AUM, has increased at a compound annual growth rate of 28% since 2013.

In fact, during the third quarter of 2018 there were seven deals of $1 billion or greater, the firm notes. The largest transaction during the quarter was Genstar Capital’s buyout of Cetera Financial Group, comprised of more than $224 billion in assets and approximately 8,000 brokers and advisers in-network. This was followed by Focus Financial’s purchase of Loring Ward with its $17 billion in AUM.

Strategic or consolidator momentum also continued, brought on by aggressive dealmaking activity. In search of growth platforms and scale, well-capitalized strategic buyers and consolidators accounted for 53% of RIA purchases during the third quarter of 2018, consummating 23 deals, ECHELON notes. Overall, the firm expects 90 acquisitions by strategic buyers or consolidators in 2018, resulting in 11% growth relative to 2017.

“Although we witnessed a decrease in deal volume quarter-over-quarter, there continues to be upward pressure on average AUM per deal as the RIA buyer pool expands to include more aggressive platforms such as private equity firms and consolidators,” explains Carolyn Armitage, a Managing Director at ECHELON Partners. “We have not seen this level of interest from strategic and financial buyers in our 15-year history, and forecast deal volume and size to be at record annual levels come year-end fueled by this trend.”

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