Merger and acquisition activity drops dramatically in the second quarter

While the number of deals is declining, the size of the average deal is growing

Jul 31, 2018 @ 12:20 pm

By Sarah Min

Merger and acquisition activity in registered investment adviser firms dropped dramatically during the second quarter, according to a report from DeVoe & Co.

RIA transactions dropped to 32 in the second quarter from a record 49 in the first quarter. That continues the volatility seen recently, with the strong first quarter preceded by two weak quarters at the end of 2017.

"It's been a whipsaw market," said David DeVoe, managing partner at DeVoe & Co. "We've gone from record lows to record highs, so it's a roller coaster."

(More: RIA sellers might be rushing in ahead of market turmoil)

The decline was driven by a drop in transactions involving established RIAs, which counted for 14 deals, or 32% lower than the three-year quarterly average. By contrast, transactions involving breakaway advisers, which are defined in the report as advisers and teams that have left wirehouses, independent broker-dealers and RIAs with more than $100 million in assets, were in line with expectations: A total of 18 breakaway dealsoccurred during the second quarter, versus 17 in the first quarter.

The breakaway transactions are being driven by regulatory activity, which is more likely to impact independent broker-dealers than RIAs, Mr. DeVoe said.

While the number of transactions decreased, the size of the average deal increased substantially. Eighty-one deals were signed in the first half of 2018, versus 87 in the same period last year. However, the 7% drop in transactions was offset by a 20% increase in deal size.

In fact, the shift was driven by a significant drop in transactions among firms and advisers with $100 million to $250 million in total client assets, while there was an increase in transactions involving those with $750 million to $1 billion in total client assets.

Consolidators like Mercer, United Capital and HighTower contributed to the trend by closing bigger deals. For example, HighTower acquired $4.5 billion Salient early in the second quarter. Consolidators have inched their share up to more than half, or 53%, of all transactions, which is the highest it has been in more than six years.

The shift is driven partly by months of sustained volatility in the stock market, which requires advisers and principals at smaller firms to spend more time working with clients versus moving a transaction forward.

"If there are one or two principals and 25% or more of their time is spent working with clients, they have less time to work on mergers and acquisitions," Mr. DeVoe said.

The weak second quarter could contribute to a flat 2018. Nevertheless, advisers polled in the DeVoe report are confident that M&A will continue its upward trend. This is a result of the broad number of buyer candidates, as well as an interest in the industry in scaling firms. Sixty percent of the firms polled expected to acquire a firm in the next 24 months.

"The owners of RIAs are aging and moving toward retirement," Mr. DeVoe said. "And as they do, they're going to sell companies to an external buyer."

(More: Private equity money altering the wealth management ecosystem)


What do you think?

View comments

Most watched


Young professionals see lots of opportunity to reinvent the advice experience

Members of the 2019 InvestmentNews class of 40 Under 40 have strategies to overcome the challenges of being young in a mature industry.


Young advisers envision a radically different business in five years

Fintech and sustainable investing are two factors being watched closely by some of the 2019 class of InvestmentNews' 40 Under 40.

Latest news & opinion

Target-date fund design may be wrong for retirees

Researchers suggest the funds don't adequately hedge against sequence-of-returns risk in retirement.

InvestmentNews' 2019 class of 40 Under 40

Our 40 Under 40 project, now in its sixth year, highlights young talent in the financial advice industry. These individuals illustrate the tremendous potential of those coming up in the profession. These stories will surprise, entertain, educate and inspire.

New Jersey fiduciary rule: Pressure leads to public hearing, comment deadline extension

Industry push results in chance to air grievances on July 17 and another month to present objections.

Galvin to propose fiduciary rule for Massachusetts brokers

The secretary of the commonwealth is proposing a fiduciary standard in response to an SEC investment-advice rule he views as too weak.

Summer reading recommendations from financial advisers

Here are some books that will keep you informed and entertained during summer's downtime


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print