RIA mergers: Numbers down but dollars up in first quarter

Mergers-and-acquisitions activity involving registered investment advisory firms with more than $50 million in assets under management increased last quarter, but the size of the deals fell dramatically, according to the quarterly report produced by Schwab Advisor Services. Schwab tracked 13 deals with $5.8 billion of assets in play in the first three months of 2013. By comparison, there were 10 deals, involving $16.5 billion in assets, in the fourth quarter of last year. The average deal size in the first quarter was $447 million in assets, versus $1.65 billion in the previous period. The level of activity may have picked up after being dampened by the fiscal cliff, but it doesn't compare well with the first quarter of last year, when 17 deals involving $24 billion in assets were completed. “The uncertain economy and fragile investment markets have been a head wind,” said Jon Beatty, senior vice president of sales and relationship management at Schwab Advisor Services. “It affects the psychology of the M&A market. We're looking for a catalyst to move us out of this trend.” That said, Mr. Beatty noted that activity has been quite consistent for the last several years. “The first quarter last year was an anomaly, with a couple of very large deals getting done,” he said. “Activity has been pretty consistent over the last three to five years.” In an industry with thousands of small players, consolidation is expected to be a major trend as aging founders of firms head toward retirement. “Deals have a powerful potential to strengthen businesses, stimulate growth and assist in succession planning,” Mr. Beatty said. RIAs were the biggest buyers in the first quarter, accounting for seven of the 13 deals. Strategic acquisition firms, like Focus Financial Partners, United Capital Financial Advisers LLC and HighTower Advisors LLC, remained active, executing five of the deals. Notably quiet in the market were regional and national banks, which didn't execute any deals during the quarter. “The banks have been quiet for the last two to three years,” Mr. Beatty said. “Based on what I'm seeing, it could be a long time before we see more activity from the banks.” A separate benchmarking study of 1,000 advisers by Schwab found that 27% of RIA firms are looking to acquire another RIA. Of the firms with more than $1 billion in assets, 33% said they are in the market to acquire another firm. “That tells us that 70% of firms are focused on organic growth or on succession internally,” Mr. Beatty said.