Merger and acquisitions by registered investment advisory firms plummeted in 2011, driven down by market volatility and an uncertain economy.
According to Schwab Advisor Services, a unit of The
Charles Schwab Corp., there were 57 M&A deals involving RIAs in 2011, representing approximately $44 billion in total assets under management. That's well down from 2010, when 70 deals were done, with a total of $64 billion in AUM in play.
The average deal size in 2011 plunged, as well, to $798 million. That's the lowest average since 2005. “People are moving to the sidelines, and both buyers and sellers are backing off,” said Nick Georgis, vice president of Schwab Advisor Services.
Deals got noticeably smaller in the fourth quarter, with the total amount of assets under management transferred plunging 89% from the third quarter, according to a Thursday report from Pershing Advisor Solutions and FA Insight on 2011 deals. Firms acquired or merged in the fourth quarter had a median of $157.1 million in assets under management, down from $1.35 billion in the previous quarter.
The biggest deal Pershing tracked in the third quarter was Silvercrest Asset Management Group’s purchase of Milbank Winthrop & Co., which oversees around $550 million in assets.
Mr. Georgis added that RIAs are becoming more active buyers, accounting for 44% of the deals last year. He didn't see any evidence, however, that smaller RIAs were merging to make the $100 million in assets limit that would put them under Securities and Exchange Commission jurisdiction, as opposed to state monitoring. Regional banks made a handful of acquisitions last year, which could signal the beginning of a pickup in bank deals, he said.
The year did start with plenty of activity, but as the market became more volatile in the summer and the economy began to look bleaker, activity dropped off, Mr. Georgis said. Schwab collects deal information from a variety of sources, public and private, but does not necessarily have access to pricing data, he said.
David DeVoe, an M&A consultant, said that deals had been on track to match the activity in 2010's total. But when market volatility spiked in the second half of the year — and the economy slid — deal making slumped.
Still, prices held steady through the year, said Mr. DeVoe, who is managing partner of DeVoe & Co.
On average, a $100 million in assets firm still sells for four times to six times cash flow, he said, while $500 million firms garner from five times to seven times cash flow. RIAs with $1 billion or more in assets get six times cash flow and up.
“In the near term, it is hard to have clarity because of stock market volatility," Mr. DeVoe said. "But we anticipate an increase in M&A for the next five to seven years.”
