Mergers and acquisitions of wealth management companies ticked back up during the first quarter of 2023, breaking a yearlong streak of declining deal volume.
Acquirers announced 75 deals over the three-month period, two more than the prior quarter, according to Echelon Partners, a boutique investment bank focused on wealth management firms. More than $1.2 trillion total assets were transacted in the first quarter.
RIA Intel previously reported that economic conditions such as high inflation, slow economic growth, and volatile markets had contributed to an overall industry slowdown of M&A transactions.
According to the Echelon report, the increase in deal volume was particularly notable, given the economic uncertainty created by the collapse of Silicon Valley Bank. However, the banking crisis did spur at least one deal: First Citizens’ acquisition of SVB Private, SVB’s wealth management unit, was the sixth-largest transaction recorded last quarter.
Echelon projects that 315 deals will be completed this year, which would make it the second most active year for M&A on record. Despite four consecutive quarters of declining deal volume in 2022, total volume still reached a record high, with 341 deals completed last year.
The consolidation of assets in the industry at a small number of RIAs is a decade-long trend driven by the record deal volume in wealth management. This trend continued last quarter, with an increased number of acquisitions of firms with at least $1 billion in assets compared to the prior quarter. In the first quarter, 33 of the 75 deals involved firms with assets over $1 billion — nearly double the 17 deals involving $1 billion-plus firms in the fourth quarter.
Rob Sandrew, chief growth officer at Integrated Partners, told RIA Intel that his firm — a hybrid RIA with $18 billion in assets under advisement — has made acquisitions an active part of its growth strategy. Historically, Integrated has partnered with firms to either bring them on as affiliates or buy a percentage of their top-line revenue. In February, however, the company bought Laurel Wealth Advisors, a $2.25 billion dollar RIA, making its first acquisition. Going forward, Integrated Partners sees acquisitions of firms with at least $1 billion in AUM as an increasingly large part of its growth strategy.
“There’s a really strong sweet spot [for us] with these RIAS that are running anywhere from a billion to $5 billion that are hitting an inflection point in their business. It’s a tipping point, and they need to figure out, ‘How do I get to the next level?’” said Sandrew. “There’s a great opportunity with those RIAs. It’s very much part of our acquisition strategy.”
According to Echelon, average assets per deal in 2023 so far have increased to more than $1.8 billion. “Many large sellers may have been waiting for improved performance in equity markets in 4Q22 and 1Q23 prior to finalizing pricing and announcing deals,” the company wrote in the report. Average assets per deal are on pace to grow by 11.6 percent over 2022’s level of $1.6 billion, the report said.
Acquisitions by RIAs made up 67 percent of deals, an increase of 4 percent from 2022. They were followed by private equity, which made up 12 percent of all acquirers — an increase of 2 percent compared to 2022. Banks, asset managers, and insurance companies made up the next largest category at 10 percent — a drastic decrease from their 2022 level of 22 percent.
About 77 percent of all transactions in the first quarter involved private equity either directly or indirectly, and many of the industry’s largest acquisitions included direct investments by private firms, like CD&R’s acquisition of Focus Financial and Harvest Partners’ investment in Mercer Private.
Moving forward, Echelon believes that transactions per quarter will remain on par with the first three months of the year, and that based on current trends, average quarterly deal volume over the next few quarters will stabilize at about 70 deals per quarter.