Evening Brief – 04.14.23
In recent years, private equity firms have been eager to make deals with RIAs because of their stable revenue streams, high margins and loyal client base. In addition, RIAs often have a high degree of scalability, which can allow private equity firms to increase their returns on investment.
According to a new Echelon Partners report, big dealmaking in the RIA space has bounced back after four consecutive quarters of decline in 2022. In the first quarter of 2023, there was a 11.6% quarter-on-quarter growth in average assets per deal, as well as 75 transactions completed compared with 70 in Q4 2022. Much of the $1.2 trillion total deal volume was driven by private equity funding.
“Private equity firms played a significant role in 1Q 23’s deals, being either directly or indirectly involved in 77.3% of all transactions,” the Echelon report stated. “Some of the industry’s largest RIAs, such as Focus Financial, Mercer Advisors and Pathstone, received direct investments from private equity firms this quarter.”
The rebound ends a four-quarter streak of declining activity in the bustling RIA industry, which in recent years has seen consolidation of financial and retirement advisory firms. In 2022, deal activity was strained by rising rates, as well as concerns about the overall economic environment.
Even with that slowdown, the rampant activity in the RIA space at the start of the year led to what ended up being the biggest deal volume since Echelon started tracking the data in 2017.
While starting out strong, this year has already had its share of anxiety. The Q1 rebound is “particularly notable” considering the market uncertainty from the collapse of Silicon Valley Bank in March, according to Echelon.
Among the biggest deals of the quarter included First Citizens BancShares’ purchase of Silicon Valley Bank two weeks after the firm’s collapse. First Citizen also took on the bank’s wealth management unit, which had more than 3,000 clients and $17bn in assets.
The largest direct investment made by a private equity firm was Clayton, Dubilier & Rice’s acquisition of Focus Financial Partners that took the company private. Focus, with $350bn in assets, was one of the few publicly traded firms in the wealth management industry.
Echelon projects an estimated 315 deals reaching completion in 2023; slightly lower than 2022, but eight deals bigger than 2021.