The Slowdown Behind Record Deal Volume

Wealth management’s record-breaking M&A streak may be at an end as signs point to a slower 2023.


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M&A deal volume in the advisor and wealth management space hit a new high in 2022, marking 10 consecutive record years for M&A activity. However, according to a new report from Echelon, average deal size declined. Echelon is a boutique investment bank focused on wealth management firms, and annually produces one of the sector’s comprehensive M&A reports.

The 340 transactions announced in 2022 represent a 10.7 percent uptick from 2021. “The deal activity of 2022 was particularly impressive in the face of a global slowdown in M&A and the rising cost of capital, further exhibiting buyers’ interest in the wealth management business model and in consolidating a hyper-fragmented industry,” the company wrote in the report, published Wednesday.

Despite impressive deal volume, Q4 2022 transactions fell 15.5 percent from 84 in Q3 and 24.5 percent compared to Q4 2021, when 99 transactions occurred. As acquirers sought smaller RIAs or just couldn’t find compatible larger deals, average assets per deal declined 23.3 percent year-over-year, from $2 billion in 2021 to $1.6 billion in 2022.

According to Echelon, 2022 was the first time in five years that both average AUM per deal and the number of transactions involving over $1 billion in assets declined. Echelon chalks this up in part to the overall decline in capital markets in 2022 (the worst year for the S&P, Nasdaq, and Dow since 2008).

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Strategic buyers and consolidators were a driving force behind deal volume in 2022. Such firms typically have a business model focused on scale, and rely heavily on M&A activity to drive growth and expansion. Frequently backed by private equity capital, strategic buyers and consolidators accounted for 42.6 percent of all deals in 2022. According to the Echelon report, 69.7 percent of all M&A transactions either involved a private equity-backed buyer or resulted from direct investment by a private equity firm.

Mercer Advisors, one of the largest RIA consolidators with over $46 billion in client assets, led the pack of strategic buyers and consolidators with 20 deals in 2022, followed by Wealth Enhancement Group with 14 deals and Creative Planning with 13 deals. Mariner Wealth Advisors and Merit Financial Advisors rounded out the top five with 11 deals each. Merit is a relatively new player on the scene, and prior to 2022 had executed only a single transaction.

Slowed Q4 2022 growth shouldn’t come as a surprise — nearly 60 percent of advisors surveyed last year by Devoe & Company expected M&A activity to flatten or decline, and 55 percent expected RIA valuations to decline. Devoe is a consulting firm and investment bank that serves wealth management companies.

Daniel Seivert, CEO and managing partner at Echelon, believes that while the M&A outlook is mostly positive going forward, the next few quarters won’t have the record-breaking numbers of the past.

“2021 was a unique year, there were a lot of people that entered the M&A market just because they were trying to get ahead of what a lot of people thought was going to be a tax change in the year 2022,” said Seivert.

In 2021, President Biden and democrats in the House of Representatives proposed raising the capital gains tax, which spurred a frenzy of M&A Activity. “As it turns out, the tax change didn’t happen,” Seivert said. “Then in 2022, as the market went down, fewer and fewer people started to enter the deal pipeline because they were no longer at the valuations that they were looking for.”

Lenny Chang, co-founder and head of M&A at Focus Financial Partners, remains optimistic, citing 2022’s overall deal growth. Chang says last year was one of Focus’s strongest years yet. Focus is a publicly traded company that owns more than 88 RIAs, and in 2022 it completed six partner firm acquisitions and 24 mergers. Seivert said many of Focus’ deal didn’t make the list because they don’t include breakaway recruiting deals, such as when an advisor leaves a wirehouse to join a larger firm and merges their book of business.

“Our experience is that M&A is secular, not cyclical, because the primary catalysts for consolidation — succession and the need for scale — are not market dependent,” says Chang. “Even extreme market volatility tends to just delay transactions, and this industry continues to under-consolidate.”

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