Expect whale watching trend to continue in M&A space, says Echelon

The pace of consolidation in the US wealth management sector is accelerating, with firms managing over $1 billion in assets increasingly becoming acquisition targets.

That's according to Echelon Partners' Q3 2024 RIA M&A Deal Report, which counted 33 transactions involving $1 billion-plus firms during the third quarter.

That three-month buying binge marked a 32 percent increase compared to the same period in 2023, the report said, highlighting a growing appetite for larger firms among private equity and strategic acquirers.

"The number of transactions involving at least $1 BN in assets is expected to rise by 12.1% in 2024E relative to 2023," the report said, highlighting larger firms' "established brand and at-scale advisor teams" and their "strategic value ...for top acquirers aiming to expand into new markets."

Aside from the 33 $1 billion-plus deals , Echelon identified five “mega-deals” involving firms with more than $20 billion in assets during the third quarter. The top-ranking deal on that leaderboard by far was the $4.5 billion take-private acquisition of Envestnet, which commands an estimated $6 trillion in platform assets, in a transaction led by Bain Capital and Reverence Capital Partners.

Strategic buyers remain the dominant force in wealth management mergers and acquisitions, the report said, accounting for 85.1 percent of the quarter’s transactions. Firms such as Mariner Wealth Advisors and Wealth Enhancement Group continued to lead the charge, with the latter closing 11 deals in 2024, adding over $5 billion in AUM. Meanwhile, Focus Financial Partners continued its aggressive internal hub merger strategy, folding Gratus Capital and HoyleCohen into the Coloney Group, its largest affiliate.

Private equity players are also maintaining a strong presence in the sector, with minority stakes gaining traction as a preferred investment strategy. That was exemplified by TPG, which made a significant minority investment in Creative Planning, with $375 billion in assets, and Homrich Berg, which had $18 billion in assets.

“The number of minority investments by private equity firms remained steady between 2Q24 and 3Q24, as RIAs sought capital injections for partial liquidity and to support their inorganic growth strategies.,” the report highlighted. 

Wealth tech firms attracted heightened attention in Q3 2024, Echelon said, with over 50 deals announced – a significant rise from the previous quarter’s 33 deals. Echelon’s report pointed to a growing interest in software solutions, particularly in areas like financial planning, CRM systems, and risk/compliance management. 

While expectations for a stable rate environment in late 2023 prompted confidence among buyers, the report expects even more frenetic M&A activity ahead as the Federal Reserve pivots into rate cutting mode.

"Now, with the first of a series of interest rate cuts officially in place, ECHELON expects an uptick in transaction volume in 4Q24 and 2025," the report said.