The pace of mergers-and-acquisitions activity among independent advisers has been slow this year amid continuing economic uncertainty, but the fundamentals behind combinations have remained strong, according to a new study.
Through the first nine months of 2009, there were just 31 deals involving a merger or sale of a registered investment adviser with $100 million or more in assets under management, according to Real Deals 2009, which was released today by Pershing Advisor Solutions LLC, the RIA custody unit of Pershing LLC.
That is roughly in line with the 44 transactions that occurred in all of 2008. The numbers are substantially below the boom year of 2007, when a record 67 RIA deals occurred, the study said.
“Capital constraints, economic uncertainty and increased levels of caution characterize the current attitudes of marketplace participants and serve as a leading catalyst for slowing M&A activity,” Mark Tibergien, chief executive of Pershing Advisor Solutions, said in a statement.
He noted, however, that the forces driving sales and acquisitions remain strong, meaning M&A activity may be poised for a rebound. “Advisory firm owners are interested in liquidity, serial buyers remain strongly committed to their longer-term acquisition strategies, and the pace of RIA-to-RIA mergers and acquisitions has increased,” he said.
So-called serial buyers — including so-called roll-up firms such as Focus Financial Partners LLC, National Financial Partners Corp. and Wealthtrust, as well as commercial banks — have backed off from large acquisitions, the report found. After generating 36% of all RIA transactions in 2008, serial buyers accounted for 26% of such deals in the first three quarters of 2009.
Consequently, RIAs transacting with other RIAs are now the leading model, making up 29% of all transactions this year.
Serial buyers, which some people say were running short on capital to do large deals, are spending more time ensuring that prospective purchases are good strategic fits. The report also said that serial buyers have been doing smaller deals than in the past, focusing on small RIAs, breakaway brokers, overseas firms and niche market specialists.
Banks have been making fewer acquisitions, but some remain active. From January 2008 through September, 2009, 18 deals were initiated by banks or
trust companies, the study found. Typical acquirers tend to be regional banks that have managed to maintain healthy balance sheets.
The study was conducted for Pershing by FA Insight, an independent-consultant firm founded by former executives of Moss Adams LLP, the accounting and consulting firm where Mr. Tibergien was previously employed.
