Wealth Management M&A Activity Surges To Record Levels

The third quarter of 2020 will be remembered as one of the most unique periods of merger and acquisition activity in the history of the wealth management industry.

There were a record number of deals in Q3 – 55 transactions in total, according to the latest ECHELON Partners RIA M&A Deal Report – which surpasses the previous high of 53 deals that our research tracked in Q4 2019.

This record period comes directly after just 35 deals took place in Q2. This 57% increase in quarter-over-quarter M&A activity also registers as one of the sharpest increases in the industry’s history, marking a major rebound after the COVID-19-related market declines delayed and prolonged normal deal-making activity, as the figure below illustrates:

Deal Size

Overall activity levels tell just one part of the story, however, behind M&A in the wealth management market – which continues to gain more recognition from private equity and non-U.S. financial institutions.

Notably, we continue to see strong valuations for RIA firms, with larger and more established firms engaging in M&A activities – both as buyers and sellers.

This is an ongoing trend that has been developing for several years, but the firms that are being acquired in 2020 are now some of the largest – with an average of over $1.7 billion in assets – and most professionally run organizations in the wealth management industry.

In total, there were 23 firms with more than $1 BN in assets acquired during the third quarter – yet another record that was set during the period.

Buyer Composition & Competition

“Professional buyers” – which include platforms, consolidators and aggregators – and their interest in acquiring larger RIAs firms, fueled a substantial amount of deal activity during the third quarter.

Firms such as Creative Planning and Hightower Advisors, for example, announced nine deals during the third quarter alone, accounting for 11% of the total overall activity.

For the full year, the eight most active acquirers have been responsible for roughly one-third of 2020’s total acquisition activity. These firms have announced deals with a combined total of $74 BN in assets under management, or 35% of the total assets acquired in 2020.

With heightened competition between professional buyers over high-quality sellers, we anticipate this trend will continue and that it will play an increased role in M&A activity moving forward.

Outlook

With strong valuations, the emergence of established buyers, access to financing, and increasing deal structure diversity, sellers have more options than ever before. We anticipate deal activity will remain near record levels, and potentially surpass 2019’s record deal volume, if economic conditions remain stable. To view the full ECHELON Partners RIA M&A Deal Report, click here.

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