Has the wealth industry entered a new era of dealmaking?

Following a frenetic 2023 that included more than 300 mergers and acquisitions, the wealth industry could be entering a historic phase of consolidation, according to Echelon Partners.

In a new report, the boutique investment bank revealed a slight year-over-year dip of 5.6 percent in dealmaking in 2023, with 321 announced transactions – just slightly behind the all-time record of 341 in 2022.

“The total number of deals announced rivaled the 2022 total, signaling that we are in a new era of wealth management dealmaking,” the report said.

2023 saw a 2.8 percent increase in the average assets per deal, to $1.7 billion. One major factor driving the increase in deal sizes, Echelon noted, was the 24.2 percent surge in the S&P 500, which boosted AUM levels and amplified the scale of transactions.

“In 4Q23, we observed the second highest quarterly deal activity since ECHELON began tracking the data,” the report said. “4Q23 deal volume was 30.1% higher than volume in 4Q22.”

There were 116 transactions involving wealth managers with over $1 billion in assets, which was down slightly, by 1.7 percent, from the total in 2022. That reflected a broader trend of $1 billion-plus consolidations staying above the 100-deal watermark as buyers and sellers grew more confident that the Federal Reserve could manage a "soft landing" for the US economy.

In 2023, strategic acquirers made up the lion’s share of deals, with most arising from add-on acquisitions by PE-backed platforms. Private equity figured heavily in last year’s wealth industry consolidation, with PE firms being directly or indirectly involved in 62.0 percent of all disclosed transactions.

Registered investment advisors continued to gather pace in the M&A race, making up 71.3 percent of all transactions, according to Echelon. The total AUM among RIAs involved in deals surged by 23.8 percent from the previous year to reach $466 billion, underscoring not just the increasing deal size but also the expanding market share of RIAs.

Last year, Carlyle’s purchase of a minority stake in Captrust represented the largest transaction by assets as it gave the PE titan a piece of an $832 billion book of business, according to Echelon. That was followed by UBS’s takeover of Credit Suisse, and Genstar Capital’s reinvestment in brokerage giant Cetera.

While the broker-dealer/hybrid buyer category saw a modest uptick in its share of M&A transactions, transacted assets also declined significantly, though the number of large-scale deals within the segment remained stable.

In the near term, Echelon expects the vigorous pace of M&A activity to persist as a continuing need for advisor succession plans and achieving growth through scale collides with other catalysts.

“We anticipate another robust year for M&A activity in 2024 given the highly fragmented market, promising growth prospects, and ample supply of motivated buyers and sellers,” the report said.