Registered investment advisory firm mergers-and-acquisitions activity is at a boil this year, and the pace likely will continue, as long as volatile investment markets don't distract buyers and sellers, according to Schwab Advisor Services.
“Overall, we saw strong numbers, compared to the past, but we are still going through a period of volatility in the markets, and I'm not sure how that will play out,” said David DeVoe, managing director of strategic business development for Schwab Advisor Services. “If volatility continues or we see a strong decline for several months, it starts to become a distraction. During market turmoil, [advisers] start to spend more and more time with their clients, and they step away from transactions.”
Market volatility didn't stop anyone from doing a deal in the third quarter, which saw 17 deals and a total of $16.7 billion in acquired assets under management. For the first three quarters, Schwab tracked a total of 44 deals, valued at a total of $37.7 billion in acquired assets under management. Prices continued to rise, though they are still off their peak reached in late 2007 and early 2008, Mr. DeVoe said. The independent RIA custodian tracks sales data from public and proprietary sources.
The 2007 peak was driven by a number of factors, Mr. DeVoe said. The RIA growth trajectory over the last several years was much higher than that of wirehouses, so the firms were not only successful but were more successful than wirehouses, which made them attractive to buyers. Demographics play a role, too. According to Schwab's data, the average RIA firm principal is 55 this year.
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Sellers are becoming more sophisticated, which also helps increase prices. “Six years ago, advisers used to sell when they were ready to retire,” Mr. DeVoe said. “Now they realize if they plan more, they can sell to the next generation earlier or to a third party.”
RIAs continued to be the most likely buyers, and during the last quarter, more
private equity came into the market. Warburg Pincus LLC made an investment in The Mutual Fund Store LLC, and Rosemond Investment Partners LLC and
The Carlyle Group also made investments in the third quarter.
