RIA M&A activity cools in Q3, but $1B plus deals are on the rise

Fidelity's latest M&A snapshot report shows a mixed picture of market activity, juxtaposing a mild deal slowdown against a significant rise in the total assets involved in transactions in the third quarter.

In its Q3 2024 RIA M&A report, Fidlelity counted a 7 percent decline in deal volume in the third quarter compared to Q2, which also marked an 11 percent drop year-to-date. Still, it said assets involved in these deals surged by 168 percent, suggesting a shift toward fewer but larger transactions as the wealth management industry adjusts to post-pandemic economic conditions.

“Q3 activity leveled off after the strongest July we’ve seen since 2016, followed by the weakest August in deal volume in five years, and a steady September,” the report noted. In total, there were 159 RIA transactions year-to-date through the third quarter, slightly behind the record pace seen in the previous two years.

"The RIA M&A industry has moved past the M&A frenzy of 2022 and 2023’s close mirror to yield a healthier, more purposeful pace," Fidelity said.

Interestingly, smaller firms appear to be contributing less to the deal pool. Sub-$1 billion AUM transactions accounted for 60 percent of deals in Q3 2024, down from 80 percent in Q3 2023, but represented only 8 percent of assets, compared to 24 percent a year ago. The net result has been an increase in median deal size, which grew 51 percent to $515 million compared to the same quarter last year.

“We are seeing a steady increase of $1 billion-plus AUM deals, climbing from 20 percent of all transactions in Q3 2023 to 40 percent in Q3 2024,” according to Fidelity's analysis. The rise in deal sizes, despite the current high interest rate environment, points to robust confidence among larger firms in expanding their market presence through acquisition.

Private equity also continues to play a significant role in the RIA space, with nearly half of all transactions year-to-date having private equity backing. This trend has been further supported by rising interest in minority-stake deals, which offer flexibility for acquirers and sellers. In Q3 alone, there were eight such transactions, including notable deals involving Summit Growth Partners and Rise Growth Partners.

Serial acquirers remain dominant in 2024, featuring Wealth Enhancement Group at the head of the pack with 10 acquisitions so far this year. MAI Capital Management and Waverly Advisors follow closely with seven and five acquisitions, respectively. This consolidation trend suggests that larger, well-established firms continue to seek opportunities for growth despite a slight slowdown in the overall number of deals.

At its current pace, the report suggests it may take decades for the RIA industry to reach a level of consolidation where deal activity significantly declines. “At our current run rate of M&A transactions, it may be at least five decades before our industry is at a place where we can start to consider it consolidated,” the report states. Succession planning and advisor retirement remain ongoing challenges, fueling much of the transaction activity.

The industry appears to be in the second phase of its growth trajectory, according to the report, with wealth management firms are strategically acquiring adjacent practices, expanding into areas like tax advisory, middle-market M&A firms, and corporate venture advisory services.

"We are actively tracking the recent trend of wealth management firms acquiring adjacent practices to expand their service offerings and meet rising client demand," the report said.