The registered investment adviser space rolled into 2017 by consolidating at a record clip, according to the latest report from DeVoe & Co.
The first quarter report, released Tuesday morning, counts a record 44 deals during the first three months of the year, versus 36 deals in the fourth quarter of 2016, and eclipses a previous high of 39
deals in the first quarter of 2015.
"Advisers are selling and merging to gain the benefits of scale in an increasingly competitive marketplace," said David DeVoe, managing partner at the consulting firm conducting the M&A research.
The strong pace of first-quarter deals potentially puts 2017 on track for a record year, because the deal count is already nearly a third of the way to reaching the
145 deals recorded last year.
In terms of types of deals, the pendulum so far this year has swung back toward more RIAs ceding some control over their businesses to be part of a larger organization.
RIA deals and breakaway broker deals were split evenly in the first quarter. In 2016, breakaway broker deals made up 55% of all deals, while in 2015, RIA deals dominated at 58% of all deals.
According to Mr. DeVoe, much of the spike in RIA deals can be attributed to smaller firms needing support to keep pace with fast-changing technological and regulatory issues.
The data show that half of the RIA deals in the first quarter involved firms with less than $250 million under advisement. That's up from 29% for all last year, and 24% in 2015.
The trend of more deals involving smaller RIAs effectively pulled down the size of the average RIA deal during the quarter to $588 million under advisement.
Last year, by comparison, the average RIA seller had $1.06 billion under advisement. And in 2015, the average RIA seller had $926 million under advisement.
In terms of the buyers, consolidator firms continue to dominate, representing 57% of all RIA buyers during the quarter, but banks also took a bigger bite, representing 16%.
In 2016, consolidators were buyers in 44% of the deals and banks were the buyers in just 3% of the deals.
RIAs, as a group, were less active during the quarter, representing the buyer in 18% of the deals, which is down from 39% in 2016.
Mr. DeVoe sees patterns in place for increased
consolidation in the RIA space.
Among the "five waves" of RIA
consolidation activity, he said banks have recently
become more significant players, having shed some of the baggage of the 2008 financial crisis.
The consolidator firms themselves have consolidated since 2008, but now represent "a dominant acquiring force in today's market," Mr. DeVoe said.
RIA firms have followed the lead of consolidators in recognizing the power of growth through acquisitions, he added.
"RIAs have arm-wrestled with consolidators on a quarterly and annual basis for a leading market share," Mr. DeVoe said.
Private equity has recently emerged as a direct buyer after years of simply backing the deals of consolidators.
"During the last few years,
private equity has cut out the middleman," Mr. DeVoe said.
Then there is the world of sub-acquisitions, which involves RIA firms that are already part of a consolidator's network becoming buyers.
"Parent companies are providing their affiliates with the capital and M&A expertise to become acquirers themselves," Mr. DeVoe said.
