Flood of RIA sales pushes industry toward a buyer's market

Record M&A activity in the second quarter is seen as just the beginning

Jul 31, 2019 @ 5:00 am

By Jeff Benjamin

The record-setting pace of consolidation among advisory firms is only going to become more competitive, said David DeVoe, managing director at the investment bank DeVoe & Co.

The first-half data released Wednesday by DeVoe & Co. show 65 acquisitions of registered investment advisers this year through June, which compares to 50 during the same period last year.

The boost this year occurred during the second quarter, when there were 33 transactions, compared to 18 during the same quarter a year ago.

"Right now, we are 30% above where we were at this point in each of the last two years," said Mr. DeVoe, who reiterated his argument that the pace of consolidation is still relatively low for an industry with 10,000 advisory firms.

"There is no shortage of firms that want to acquire, and this is an industry that really needs buyers across all sizes," he added.

Citing the aging financial adviser workforce and an industry that is generally underprepared for succession planning, Mr. DeVoe said selling the business has become an increasingly popular exit strategy.

But as more advisers try to sell their business, Mr. DeVoe said the market could become flush and evolve into a buyer's market.

"We will have hundreds of firms with $100 million to $250 million that will need to do a transaction, because we all know the advisers have not done the succession planning they should have," he said. "We have a good pool of buyers right now, but if we had a scenario where we had 200 sellers come on the market, which is double what we're seeing now, we don't have enough buyers to absorb that, and that would compress valuations."

For now, the market is still balanced enough to push RIA valuations steadily higher, Mr. DeVoe said, with strong demand coming from consolidators and other RIAs trying to gain scale.

One emerging theme is the growth of sub-acquisitions, including 12 done so far this year by RIAs that operate under consolidator firm Focus Financial Partners.

Focus led all first-half buyers with 15 deals, even though all but three were sub-acquisitions.

Captrust Financial Advisors and Mercer Advisors each completed four acquisitions during the first half, but neither did any sub-acquisitions.

The 11 sub-acquisitions in the second quarter set a record, according to the report, and helped push RIA buyers to 55% of all first-half acquisitions, followed by consolidators as the next largest group of buyers, at 37%.


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