RIAs, wealth managers riding the M&A wave

Consolidation isn’t just happening in the world of institutional asset management, as RIAs and wealth managers saw a record 230 deals in 2021, according to a report by wealth management and investment banking consultant DeVoe & Co based in San Francisco.

That number eclipsed the 159 deals in 2020, and the outlook for 2022 suggests M&A activity is likely to remain elevated. RIAs that manage defined contribution pension plans are among the targets.

According to the report, the number of serial acquirers seeking RIA/wealth management clients has grown from a few companies to more than a dozen. Serial acquirers have become highly effective at onboarding targets, according to the report, while six companies — Beacon Pointe AdvisorsCI Financial, Focus Financial Partners, Mariner Wealth Advisors, Mercier Advisors and Wealth Enhancement Group – made 10 or more deals in 2021 alone. Other larger AIRs are also looking for smaller targets to add scale. According to the report, 90% of companies with more than $3 billion in assets said they plan to make a purchase in the next two years.

“The biggest reason people make deals is scale,” says David DeVoe, founder and CEO of Berkeley, Calif.-based DeVoe & Co.. He noted that scaling up happens in all areas, from small to large companies.

Mergers and acquisitions are gaining traction with potential buyers and sellers. Buyers can increase assets under management and strengthen investment strategies that fill gaps in a range of funds. Sellers typically join larger companies that have better marketing and technology capabilities, making it easier to scale their businesses, according to the report.

Tentpole advisor platforms like Santa Clara, Calif.-based Edelman Financial Engines, which have a number of nationwide offices operating under the same banner, have invested millions of dollars in online marketing and customer engagement, making it an attractive platform for businesses that lack it. capacities.

“Middle-office and back-office support are other important drivers of the scale conversation,” said Barnaby Audsley, Los Angeles-based investment banking vice president at the management consultancy. of Echelon Partners portfolio. “If you’re getting into this business because you love working with customers, having the operational and technical support that allows you to focus on that can be a compelling reason to sell if you find the right company to work with. associate you.”

Large serial acquirers aren’t the only ones conducting wealth management M&As. Based on deal data collected by Echelon Partners, they predict that over the next 12 to 24 months, a significant number of deals will be led by private equity managers.

“Private capital is either looking for platform acquisitions where they can create a new holding company or they are doing combination (consolidation) deals. We are seeing a lot of activity for both options,” Mr. Audsley said. He added that as platform companies mature, they may make additional acquisitions of RIAs/wealth managers, which will lengthen the current cycle.

While business activity is expected to remain high, potential sellers will still need to find ways to stand out. DeVoe notes that valuations are high and buyers want to be sure they won’t end up on the wrong side of a trade.

“Companies need to be really aware of how they position themselves in the market,” he said. “Taking a call and sharing details that you can’t fully corroborate is a good way to tarnish your credibility. We’ve had companies tell us they had strong organic growth, but once you compare them to the market, it’s actually much lower; those are the surprises that nobody wants in a deal.”

Customer expectations are also rising, fueling the desire to add more functionality through transactions. The Devoe & Co. report notes that many clients prefer to have wealth management, tax and estate planning, and investment strategy from the same adviser. Companies that have focused on one area are under pressure to offer a more comprehensive range of services. It can be difficult to develop these capabilities organically, which could result in continued transactions over time, as companies choose to acquire these capabilities rather than develop them.

“The industry is now shaped by ‘meta-RIAs,’ which provide a broader set of services, operate more efficiently and may even serve customers better than a typical RIA,” DeVoe said.

Dolores W. Simon