The M&A market for registered investment advisors showed no signs of slowing, with a slight uptick in activity in the first quarter of 2024, according to a new report.
In its Q1 2024 RIA Deal Book, DeVoe & Company logged 65 transactions over the first three months of the year, representing a 3 percent rise compared to the 63 deals in Q1 2023. It also marked the second consecutive quarter of growth after a rebound in Q4 2023.
“The current RIA M&A environment remains healthy overall and surprisingly steady,” the report said. “For nearly three years, the number of deals per quarter has consistently hovered around the mid-60 range.”
Following that strong start, DeVoe anticipates 2024 will surpass the 251 transactions announced in 2023, driven by continued consolidation and succession challenges.
By DeVoe’s count, smaller RIAs with $100 million to $500 million in assets under management comprised 54 percent of Q1 2024 deals, the highest proportion since 2014. These firms are increasingly seeking mergers to solve business challenges, such as growth and succession planning.
Firms with less than $1 billion in assets made up a larger 71 percent majority of all transactions, up seven percentage points from the previous year. Many smaller firms are opting to join forces with other RIAs, the report noted, as they look to growth and strategically position their businesses.
DeVoe also highlighted a shift in buyer categories, with RIAs upping their share to 35 percent of transactions in 2024, compared to 29 percent in 2021. Meanwhile, despite a declining market share, consolidators remained the dominant buyer group, with 43 percent of deals in 2024.
Private equity firms had a hand in 15 percent of transactions in 2024, representing a significant uptick in activity.
Looking at the first-quarter leaderboard of acquisitions, MAI Capital Management came out on top with five acquisitions, followed by Allworth Financial, Constellation Wealth Capital, and Diversify Wealth Management with three transactions each.
Devoe highlighted the influence of succession planning challenges in the M&A trend, citing previous research that concluded fewer than one-fifth of advisors have confidence in their next-generation leaders' ability to afford a buyout, sharply down from 39 percent in 2020.
“Succession challenges and consolidation at the top of the industry are expected to drive increasing transaction volume for the next five or more years,” the report noted.
But overall, talent acquisition was the top driver of deals, with 76 percent of advisors citing it as a primary goal. Growth of clients and assets followed closely at 74 percent, while 57 percent of advisors prioritized expansion into new markets and geographies.
“The concept of selling to another RIA — as opposed to a serial acquirer — tends to be more compelling for firms under $1 billion in AUM,” the report stated, highlighting the appeal of strategic partnerships among RIAs.
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