Mergers and acquisitions involving registered investment advisors (RIAs) in 2015 soared to a record 123 transactions, a 37 percent increase over 2014, according to new research.
The number of “megadeals” involving RIAs with $5 billion or more outpaced overall RIA transaction growth, according to DeVoe & Co in San Francisco. The 123 transactions among RIAs in 2015 was more than double the 58 transactions recorded just two years earlier.
“The continued surge in RIA M&A activity over the last two years is a natural phase of consolidation that most hyperfragmented industries experience as they mature,” said David DeVoe, managing partner and founder of DeVoe & Co. “We expect this momentum to continue and potentially accelerate over the next five to seven years.”
The survey was published in DeVoe & Co.’s RIA Deal Book. It covers 4,165 RIAs with $100 million in assets under management registered with the Securities and Exchange Commission.
Every RIA seller segment was up last year, but the number of transactions involving RIAs with $5 billion or more in assets under management soared to a record 13 deals from only two transactions in 2014 and three in 2013.
Megadeal volume was due to the mix of acquires — consolidators, banks, private equity and even a technology company — and the deals took place against a year with higher market volatility, which traditionally dampen RIA mergers, the report said.
Average AUM for established RIA sellers, excluding RIAs with $5 billion or more under management, was $855 million in 2015, an increase of 23 percent over 2014.
“The entrance of numerous new, well-financed players targeting extremely large RIAs indicates both confidence in the independent model, as well as the accelerating pace of change to this industry,” said Vic Esclamado, managing director at DeVoe & Co.
RIA Deal Book is sponsored by Nuveen Investments.
Snapshot of the Buy Side
On the buy side, 39 percent of all acquisitions in 2015 were executed by other RIAs, 42 percent by consolidators, 6 percent by banks and 13 percent by other buyers, the survey found.
The percentage of acquiring RIAs dropped in 2015 compared with 2014, while the percentage of acquiring consolidators rose last year compared with the year-ago period, the research found.
RIAs and consolidators have been the dominant buyer category in each of the past three years, but banks have been more active recently, DeVoe said.
“I would not be surprised to see national and regional banks coming back into the market to buy RIAs,” DeVoe said in the webinar Thursday. “It's the high-net-worth clients that are very attractive to banks and the cross sell that is attractive.”
Bank acquirers slowed down after the financial crisis but ramped up once more after they stabilized. The recent purchase of stakes in RIAs by private equity companies Hellman & Friedman, Genstar Capital, Lightyear Capital and TA Associates are considered a vote of confidence.
“This is smart money and they are deploying capital on the independent model,” said DeVoe, a former executive with Charles Schwab.
In the next few years, the industry is going to need more buyers capable of absorbing greater numbers of sellers as advisors retire and sell their practices, the report said.
Buyers are for the most part fair but because so many elements go into a deal, sellers need to be aware that buyers have done their homework and due diligence. About 90 percent of buyers have closed on a previous transaction in the past — so buyers tend to know what they are doing, DeVoe said.
“Seller beware in this case,” he said.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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