A Sign of “Optimism”
There were 75 registered investment advisor (RIA) mergers and acquisitions (M&As) reported in the second quarter of 2024. While this is down from 90 deals in the first quarter, it represents a 15.4% growth over the same period last year, according to RIA M&A consultant Echelon Partners.
Although this represents the second consecutive quarter of declining deal volume, it is consistent with the historical tendency of the second quarter being the “least active period,” according to Echelon. However, the firm highlighted that activity was strong, citing the second-most active second quarter on record.
“The quarterly deal activity shows how interest rates affected deal volume over the past 2-3 years: rates rose substantially from the beginning of 2022 to August 2023, leading to a temporary drop in deal volume. Over time, the continued supply of willing sellers and the promise of strong returns prompted greater creativity in deal financing and structuring leading to the elevated activity seen in 3Q23-1Q24, observed Echelon.
“Now with discussions of a possible rate cut in late 2024 and more in 2025, slight optimism for less expensive financing may be returning. 2Q24’s strong activity relative to 2Q23 may be the first sign that this optimism is beginning to materialize,” the firm added.
Strategic acquirers accounted for 84% and 16% of total transactions during the quarter, respectively. Notable transactions included the merger of Focus Financials’ partner firms Buckingham Wealth and The Colony Group, which created a $115 billion platform, and Cerity’s $15 billion acquisition of OCIO Agility.
Several larger transactions occurred in the second quarter, contributing to the average deal size reaching unprecedented levels, including Sanctuary Wealth’s acquisition of tru Independence, a $12.5 billion TAMP. The deals increased the average assets under management per deal to almost $2.3 billion, up from $1.8 billion in the first quarter.
Private equity is still quite active in wealth management, directly engaging in 16% of deals and acting as a direct investor or sponsor in approximately 71% of transactions in the second quarter. These included Advent International’s and the Abu Dhabi Investment Authority’s (ADIA) $3 billion minority investment in Fisher Investments, The Riverside Company’s and other investors carve-out of Aon’s $218 billion Townsend Group, and GTCR’s $2.7 billion take-private transaction with AssetMark.
Overall, the average assets under management per deal for the 12 direct investments by private equity investors in the second quarter was $54.6 billion, sharply higher than the average.
“This increase can be attributed to the increases in capital markets over the past 12 months and to an increasing number of large platforms that are seeking additional capital,” Echelon said.
Minority investments continue to gain traction as new participants enter the fold, including Rise Growth Partners, Constellation Wealth Capital, and Elevation Point. Private equity funds made roughly 17% more minority investments in the second quarter, “as more RIAs are seeking capital injections to achieve partial liquidity or to support their inorganic growth strategies.”
The wealthtech industry remains an appealing investment option, with 33 transactions reported in the second quarter. Of these transactions, 75.8% featured targets offering software as a service to wealth management firms.
If the current pace continues, Echelon estimates that the industry will see 332 transactions by the end of the year, indicating a 3.4% rise over 2023 and surpassing the 321 deals Echelon recorded for 2023.
Given that the fourth quarter is traditionally the most active quarter of the year, it is possible that the industry will exceed the annualized total in the first half of the year. If the current trend continues, “the number of deals is expected to exceed 2023, making it the second most active year in dealmaking activity in the last six years,” according to the research.