With a record 36 transactions completed in the third quarter, 2019 has already surpassed all of 2018 in terms of merger and acquisition activity among registered investment advisers.
The total of 101 deals so far this year compares to the record 100 deals in 2018 and the 89 deals completed in 2017.
The third-quarter data, published Tuesday morning by investment bank DeVoe & Co., shows deals involving firms with less than $500 million under management continue to drive consolidation activity.
Of the 101 deals through the first nine months of the year, 55 involved RIAs with less than $500 million under management., according to the data. That compares to the 46 deals last year that involved firms with less than $500 million.
"A lot of firms are now targeting sub-$500 million firms and there are a lot of firms in that range," said David DeVoe, managing director at DeVoe & Co.
The focus on smaller-sized firms has driven down the average size of firms being acquired, which stood at $716 million through September of this year. That compares to $920 million last year, $1 billion in 2017 and $1.06 billion in 2016.
Mr. DeVoe attributed the trend of more small-sized firms being acquired to firm owners recognizing "the reality of being at a decision point."
"At $500 million, a firm is transitioning from a practice to a professionally managed firm where you're entering the next level of running a business," he said. "Transitioning to a professionally managed firm is a big undertaking, you're starting to hire people to specialize, you're hiring a chief operating officer, and a technology expert, and you're giving up a lot of control."
The record 36 deals in the third quarter beats a record 33 deals set in the second quarter of the year, extending a steady climb dating back to the second quarter of 2018, which saw 18 RIA transactions.
The pattern of increasing deal activity is not expected to taper off anytime soon, according to a survey of RIAs conducted by DeVoe earlier this year.
Of the 168 RIAs it surveyed in April, 60% said they expect merger and acquisition activity to continue growing for at least the next five years.
A key driver in considering a sale is the record-level valuations that owners are getting at this point in the market cycle.
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According to the survey, 39% of RIA respondents ranked valuations as a top reason for selling. And among firms with more than $1.5 billion under management, valuations were ranked as the top reason to sell by 62% of respondents.
Perhaps surprisingly, the record-level stock market valuations were not cited as a major reason to sell; 82% of respondents said expectations of a stock market decline were not influencing their decisions to sell.