RIA M&A off to roaring start in 2015

Mergers and acquisition activity among registered investment advisers may be a lagging market indicator as market growth finally seems to be boosting the number and size of deals in the channel.
In the first half of 2015, there were 37 deals, up from 29 over the same time last year, according to a survey of around 1,000 firms by Charles Schwab & Co. Inc. The average size of the assets of the firms acquired in those deals ticked up to $1.35 billion, the highest since 2009 when it was $1.7 billion. Eleven of the deals were for firms with $1 billion or more in assets.
Growth of the RIA channel and strong markets have helped increase valuations and put firms in a position to invest, according to Jonathan Beatty, senior vice president of sales and relationship management at Schwab Advisor Services.
“We saw a fairly significant uptick in the first half of 2015 both in terms of the number of deals, but also in the dollar volume of deals,” Mr. Beatty said. “It’s interesting that we’ve already exceeded in dollar amounts last year’s deal size in the first half of this year.”
What Schwab refers to as strategic acquiring firms, which are roll-up type firms such as United Capital or Focus Financial Partners, showed the most growth and comprised 43% of the deals in the first half of 2015 compared with around 37% last year. RIAs were responsible for 38% of deals.
Schwab’s data are self-reported from firms that custody with Schwab. The data is not independently verified, but is backed up anecdotally by the deals announced this year, most recently by Bronfman E.L. Rothschild’s purchase of Highline Wealth Management, which created a $3.6 billion firm. That followed a handful of other billion-dollar deals earlier in the year by firms such as First Republic Bank and AMG Wealth Partners, which has invested in several RIA firms.
Whether the trend will continue may depend on how the markets perform, warned Mr. Beatty.
“I maybe had more confidence two weeks ago before we started in this market correction,” he said. The trend “depends on whether we’re in a correction or a long-term secular move whether that will be a headwind in the second half of the year.”