“Slow and Steady” RIA M&A Growth
Mergers and acquisitions in the registered investment advisor industry experienced a decrease in activity during the second quarter. However, the level of activity was still higher compared to the same period a year ago. This suggests the market is continuing to grow gradually, following a trend that has emerged since the pandemic, according to a new report.
In its most recent RIA Deal Book report, DeVoe and Co. noted that there were 61 transactions in the second quarter, down from 65 deals in the first quarter but higher than the 57 deals in the second quarter of 2023, which the firm described as an atypically slow period.
This “slow and steady” growth aligns with the post-Covid pandemic trend in the RIA M&A space, which has “consistently” seen a quarterly deal volume of approximately 65 for nearly three years, according to the report. Meanwhile, 126 deals were announced in the first six months of the year, a 5% increase over the same period in 2023.
“Though modest, this growth signals a stable, healthy M&A market. Transaction activity continues to be driven by RIAs’ need to solve for succession, growth and scale. On the buyer side, established acquirers are being joined by new entrants, and both are typically backed by private equity. At the same time, the current high interest rate environment demands increased discipline from all participants,” DeVoe noted.
The industry continues to experience “a proliferation of new buyers” as 83 of them announced acquisitions in the first half of 2024, 26% more than the same time the previous year, with private equity having “a profound influence.”
Nearly 75% of all transactions completed so far this year involved firms backed by private equity. “An offshoot of private equity is the momentum of sub-acquisitions (acquisitions by firms that were previously acquired themselves) and the revival of minority investments. So, despite a relatively boring topline of total M&A activity, several sub-trends are keeping things interesting,” added DeVoe.
Mega companies with more than $5 billion in assets under management seem to be on target for their finest year ever. Currently accounting for 15% of year-to-date transactions, this group of buyers has regained ground lost by large sellers. Mega-sellers have announced 19 transactions in the first half of 2024, six more than they did in the same period in 2023.
DeVoe also discovered that the average size of the RIAs engaged continued to rise, reaching $927 million in the first half of 2024, up from $819 million in the first half of 2023 and $827 million at the same time in 2022, but down from a high of $1.1 billion in the first six months of 2021.
DeVoe’s figures only include transactions involving $100 million or more in assets under management and traditional RIA businesses. The counts do not include advisors who move to other firms “unless there are important developments.”
Meanwhile, minority transactions are trending higher. Following a significant decline from a historic high of 14% in 2020, minority transactions decreased to only 8% in 2023. However, in the first two quarters of 2024, there was a three-percentage point increase, bringing minority transactions up to 11%.
In addition, the size of RIAs that sold minority holdings in 2024 rose significantly above historical levels. More than 50% of the 14 transactions disclosed this year have featured mega-sellers who possess assets above $5 billion. Additionally, there were five deals where the sellers had assets valued between $1 billion and $5 billion. Overall, 93% of sellers exceeded $1 billion in 2024, which is higher than the historical average of 77%.
DeVoe’s list of top acquirers includes both well-known names and several new entries in 2024. Constellation Wealth Capital, Arax Investment Partners, Diversify Wealth Management, Perigon Wealth Management, and Miracle Mile Advisors joined the list for the first time in the first quarter. In the second quarter, four more serial acquirers were added. Meanwhile, Wealth Enhancement Group topped the list of the industry’s most active buyers once again, with 12% of all transactions.
“We anticipate the growing need for succession, the power of scale, and the threat of increasing competition will likely bring more sellers to the market over the next several years. Although there is no shortage of buyers today, when interest rates eventually decline, we expect well-capitalized buyers to become more active,” DeVoe concluded.
