M&A deals for billion-dollar advisory firms double this year

Consultant says transactions for large planning practices bodes well for any size firm looking to sell

Jul 12, 2016 @ 12:01 am

By Liz Skinner

Very large is no longer big enough, it would seem, for financial advisory firms that face mounting competitive and regulatory pressures.

There's been a spike in the number of mergers and acquisitions that involve very large firms — those with $1 billion to $5 billion in assets under management — during the first six months of 2016, according to industry consultant David DeVoe.

There have been about 12 deals involving firms of this size so far this year, compared with 14 transactions for all of last year, he said. About 20% of all sales activity involved these very large firms, which is about double the rate in the last two years.

This increase is an outgrowth of a trend seen in 2015, when there was a large jump in the number of so-called mega-deals, those involving firms with $5 billion or more in AUM.

“For an advisory firm that might be contemplating a sale, to see firms they admire, and that are two to 10 times their size, selling, it reinforces that this is a good time for such a decision,” Mr. DeVoe said.

(More: Already sizzling market for advisory firms could be stoked by DOL fiduciary rule)

In one such merger announced in March, Kanaly Trust said it will join its $2 billion in assets with Mercer Advisors to create a registered investment adviser with $8 billion in AUM.

Firms in the $1 billion to $5 billion AUM size also are very attractive to consolidators, banks and private equity firms that have increasingly been active in the financial advice industry. At this size, businesses can have people dedicated to areas like compliance and technology integration, two matters that increasingly require strategic decisions to stay competitive.

“When you've crossed the $1 billion threshold, it's a sign you have a well-established platform and are an efficient, industrial-strength organization that's attractive to buyers,” Mr. DeVoe said.

(More: Trouble looms for small RIAs in next bear market)

The surge in very large firms copying their outsized colleagues comes as the industry in general goes through a period of consolidation. Last year, 123 advisory firms of $100 million or more in AUM were acquired or merged with another firm, an increase of 37% from the 90 such deals in 2014, according to a report from DeVoe & Co.

Mr. DeVoe expects about the same number of deals to close this year as last year, though he doesn't anticipate a repeat of the 13 mega-deals that occurred in 2015.

Typically, there are only two or three transactions involving advisory firms of $5 billion or more each year, he said.

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