RIA Dealmaking Poised to Eclipse 2023 Total
The number of merger and acquisition deals within the registered investment advisory space announced in 2024 is anticipated to surpass the total number observed in 2023, thereby making this the second most active year in the history of wealth management dealmaking, according to a report from investment bank ECHELON Partners.
In the third quarter, buyers disclosed 74 transactions. Despite the slight decrease in comparison to recent quarters, there are still indications of optimism, as the year-to-date transaction volume for September 2024 surpassed the deal volume for the same period in 2023. Specifically, 241 transactions were announced through the end of the third quarter of 2024, compared to 239 deals by the end of the third quarter of 2023.
According to the research, strategic purchasers dominate transaction volume, while financial acquirers focus on large deals. In the third quarter, strategic acquirers (mainly private equity-backed RIAs) and financial acquirers (mostly private equity firms) announced 85.1% and 14.9% of the total deals, respectively, largely mirroring the second and first quarters.
The Colony Group, the largest affiliate of Focus Financial Partners, acquired Gratus Capital and HoyleCohen, among other notable RIA purchases. Corient announced a large deal, acquiring $7 billion Emerald Family Office. Noteworthy deals by financial acquirers included Bain Capital’s acquisition of Envestnet, TPG’s minority investments in Creative Planning and Homrich Berg, and KKR’s acquisition of Janney Montgomery Scott.
Private equity is exceptionally active in the wealth management environment, having announced 33 direct investments and 122 indirect investments (via private equity-backed strategic acquirers) as of the third quarter, accounting for 64.3% of total transactions year to date.
The largest industry players continue to favor minority investments, which obtained popularity in 2022 and 2023. Eight minority investments were announced by private equity firms, including Charlesbank Capital’s investment in Aprio and TPG’s investments in Creative Planning and Homrich Berg. ECHELON reported that the volume of minority transactions has increased consistently year over year, with 34 transactions in 2022, 35 in 2023, and a projected 41 transactions by the end of 2024.
Dealmaking in the wealthtech sector continued to flourish. Investors announced over 50 WealthTECH transactions in the third quarter, a significant increase from the second quarter, when 33 deals were announced. In the areas of financial and retirement planning, risk/compliance, and CRM/marketing and business development, software firms continue to be a popular target for strategic acquirers and private equity buyers who are seeking to provide enhanced technology solutions to their advisors and clients.
Wealth management acquisitions are still influenced by strategic buyers and private equity. Among the most significant of these transactions was the acquisition of Envestnet and its $6 trillion in assets by Bain Capital and Reverence Capital Partners. In the third quarter, BlackRock made headlines by investing in two wealthtech companies and one alternative investment platform. Active strategic buyers, both in terms of deal volume and size, included Corient, Mariner Wealth Advisors, Cerity, and Wealth Enhancement Group.
Even though deal activity was comparatively consistent this quarter compared to the previous one, ECHELON observed that large acquirers are continuing to raise capital and that many have indicated they will be closing numerous deals by the end of the third quarter.
There were 33 transactions that involved a minimum of $1 billion in assets, a 32% increase from the 25 transactions that involved $1 billion or more during the same period a year ago. ECHELON anticipates a 12.1% increase in the number of transactions involving at least $1 billion in assets in 2024E compared to 2023.
The established brand and at-scale advisor teams of these larger firms are expected to generate sustained buyer interest, according to ECHELON. In addition to their stability, they are exceptionally appealing acquisition targets due to their strategic value as centers for top acquirers seeking to expand into new markets.
The firms that announced the most acquisitions in the first nine months of the year included Wealth Enhancement Group (11), MAI Capital Management (6), Constellation Wealth Capital (5), Waverly Advisors (5) Allworth Financial (5), Carson Wealth (5), and Mariner Wealth Advisors (4).
ECHELON anticipates deal activity will remain robust in the months ahead, given the likelihood of further declines in interest rates and the abundance of private equity-backed purchasers interested in investing in RIA firms.
“If the same trends demonstrated in the first three quarters of M&A activity continue, ECHELON projects buyers will announce 330 transactions in 2024, a 2.8% increase relative to 2023,” the authors wrote. Given that the fourth quarter has historically been the most active quarter of the year, it is very possible that the industry could exceed the September, 30 year-to-date annualized total.”