This content is from: Wealth Management

A Wealth Management M&A Prophecy Is Becoming Reality. But Something Is Different This Time.

The industry’s momentum reignited sales talks and deal volume is rebounding this quarter. The competitive landscape is not the same though.

Bankers and consultants expected the Covid-19 pandemic would hamper mergers and acquisitions in the wealth management industry, and it did. Deal volume fizzled in the second quarter. They also predicted the momentum of the industry itself would quickly restore deal activity and that prophecy is also becoming a reality. But now that negotiations have resumed, the M&A landscape has materially changed.

There were a total of 35 deals in the second quarter, down 20% quarter-over-quarter and down 34% compared to the second quarter of 2019, according to Echelon Partners, a boutique investment bank that publishes the industry’s most inclusive report on mergers and acquisitions. 

Still, Echelon estimates there will be 184 deals in 2020, down slightly from a record 203 in 2019. Deals are months in the making and even a pandemic and historic market downturn (especially one followed by a swift recovery in equity markets) weren’t going to stop deals already underway.

“It’s not like baking a cake, you don’t start it one morning and finish it in the afternoon. It’s a nine to 12 month process,” Dan Seivert, the founder and CEO of Echelon Partners, told RIA Intel.

In the spring, many sales talks were paused while advisors tended to clients and evaluated their businesses but activity rebounded and was strong in May, June, and July, according to Seivert.

A report published Tuesday by Fidelity Investments supported that trend, Scott Slater, a vice president of Practice Management & Consulting at Fidelity Institutional, the investment firm’s custody business, wrote in a note about the report. Slater focuses on the mergers and acquisitions of RIAs at the company. “The strong activity seen over the past two months resembles the healthy M&A market experienced throughout 2019.”

But while deal volume is returning to a previous state, the competitive landscape is evolving and taking new form.

“The competitiveness has never really been higher,” Seivert said. “What you used to have was contenders and pretenders, much like ESPN talks about sports competitions” and that’s no longer the case.

At one point, well before the pandemic, only about 15 wealth managers had the resources and capabilities to routinely acquire others and aggressively fend off competitors. Now, there are more than ever before, a group of about 40 firms with teams dedicated to mergers and acquisitions and “they are all trying to do six to 12 deals per year,” Seivert said.

Meanwhile, accessibility to debt and equity capital is the best it has ever been in the industry, Seivert said. Lower interest rates have helped cash take a greater precedence in deal structures. There are now roughly 200 private equity firms active in the wealth management industry, he added. 

As a result, more competitive deals are happening and leading more advisors to consider selling, something they were dragging their feet doing last year.

Within cross-sections of wealth management M&A, venture capital investments in so-called wealthtech companies are off from a record in 2019. But the market for TAMPs, or turnkey asset management platforms, is red hot. “There’s so much going on that it’s hard to even know where to start,” Mike Wunderli, a managing director at Echelon Partners, told RIA Intel last month.


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