RIA mergers and acquisitions set another record in 2017

More smaller transactions brought the average size deal down to $881 million from just over $1 billion in 2016

Jan 22, 2018 @ 5:00 am

By Jeff Benjamin

Merger and acquisition activity in the registered investment adviser space accounted for 153 deals in 2017, representing a fourth consecutive record year, according to the latest research from DeVoe & Co.

The year's M&A activity, which started with 46 deals in the first quarter and gradually slowed to 33 in the final quarter, was impacted by two major factors, according to David DeVoe, the research firm's managing director.

Mr. DeVoe said M&Aactivity was heavily influenced by delays in the Department of Labor's fiduciary rule, and the late-year decision by Morgan Stanley and UBS to abandon the broker protocol agreement for recruiting.

The "wave of activity stopped abruptly" during the second half of the year when the Trump Administration delayed the implementation of the DOL rule and left its future in question, Mr. DeVoe said.

Regarding the move away from broker protocol, Mr. DeVoe said, "We have only begun to see the impact" of a policy change that could make it more difficult for advisers to leave brokerage firms.

The bulk of the RIA transactions were made by consolidator firms (50%). RIA acquirers, meanwhile, saw their share fall from 46% in 2015 to 38% in 2016 to 31% last year.

But, while RIA buyers have made up a shrinking percentage of all deals over the past three years, and consolidators have remained steady, banks have stepped up to 8%, from 3% of transactions during each of the prior two years.

One area that shows the evolution of a maturing RIA space is an increase in so-called sub-acquisition deals, represented by acquisitions by consolidator-firm affiliates.

Last year there were 17 such deals, down slightly from 19 in 2016. But during the first two weeks of January, Mr. DeVoe counted at least five sub-acquisition deals, which shows promise for more 2018 activity.

A surge in smaller-sized deals pulled down the average deal size to $881 million in assets under management, down from an average of just over $1 billion in 2016.

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