M&A flat as buyers grow disillusioned

Acquisitions among registered investment advisers was flat last year, as buyers have become disillusioned about bringing new firms under their umbrella, according to a semi-annual study from Schwab Advisor Services, the RIA custody unit of the Charles Schwab Corp. The total number of deals the custodian tracked last year was 54, the same as 2013 and just slightly above the average of 51 for the last nine years of the survey. The total assets under management changing hands was $47.4 billion, up 8.5% from the $43.7 billion in 2013. Jon Beatty, senior vice president of sales and relationship management at Schwab Advisor Services, interpreted that as a sign that buyers were becoming more selective. “While many firms seek merger or acquisition opportunities as a means for growth, we haven't seen the spike in consolidation that industry observers have predicted,” he said. Firms "are being selective about opportunities and considering additional factors such as cultural and philosophical fit to ensure a merger or acquisition is beneficial.” As an important caveat to the numbers, Schwab only tracks publicly announced deals. Many more firms change hands outside of the eye of the media, industry consultants say, so the numbers may not be a perfect depiction of industry activity. Schwab's data did capture some of the larger deals of the year, Mr. Beatty said, and included four worth north of $1 billion each, and one of the largest of the year, the purchase of $4.5 billion Banyan Partners by Boston Private Bank & Trust Co. Even so, while the level of M&A is healthy, according to Mr. Beatty, the numbers are anti-climactic given the industry's enthusiasm for M&A and predictions for increased consolidation. Part of the reason for the lack of a larger uptick is the fact that some of the biggest acquirers have pulled back. Aggregators, or strategic acquiring firms as Schwab calls them, represented only 38% of deals last year, down from well over 50% in 2012, according to Schwab. Some of those firms, including United Capital and HighTower, have backed awayfrom making acquisitions, as they have become too costly. In another study last year, only 25% of buyers reported that they were “very satisfied” with their acquisition, according to Aite Group. In addition, despite the enthusiasm for buying, many firms might be finding it more difficult to find sellers. Many firm owners are opting to continue to focus on growing their practices, believing that they may be able to attain a better valuation later as the demand remains high for independent firms, Mr. Beatty said. “Sellers are being patient and growing their own firms,” he said. “It's remarkable the consistency we have had over the last five years.”