Consolidation in the wealth management space might not be slowing down, but it's evolving in some interesting ways.
According to the latest report from Fidelity Investments, there were 14 RIA deals announced in April, which combined for $11.4 billion worth of client assets.
That compares to 22 deals and $33 billion in April 2022, and 22 deals and $43 billion in March 2023. But it’s worth noting that the March data were heavily tilted by the sale of Silicon Valley Bank, which had $15.9 billion in client assets.
The message underlying the numbers, said Laura Delaney, Fidelity’s vice president of practice management and consulting, is that the current economic cycle is bringing down valuations, which is resulting in more deal activity among smaller firms and also presenting unique advantages for buyers.
“I believe smaller firms are finding it difficult to grow in this kind of market, and they’re looking for additional services and ways to gain scale,” Delaney said. “Organic growth rates are hovering around 3% to 4%, but when you join a larger firm, you’re able to grow at a faster pace. And the reason you should be doing all this is to benefit clients with additional services and scaled processes. For the clients, it’s a much better experience.”
The Fidelity research shows that 64% of last month's transactions involved firms with less than $1 billion in client assets.
Private equity also became a major factor during the month, with 93% of acquirers having PE backing.
Two of the 14 deals in April involved first-time buyers, bringing the total number of first-time buyers this year to 17.
Delaney said the trend toward first-time buyers is partially a result of firms growing big enough to become buyers and partially the reality of deal structures that are starting to favor buyers.
An example of that, she said, is longer earnouts for sellers that involve less of an upfront payment, with more of the proceeds paid over a multiyear period, keeping the seller committed to the business longer.
One other finding from the research is that mega-buyers and strategic acquirers constitute slightly less of the deal activity.
“They still dominate but make up a smaller share of overall deals and of overall assets,” Delaney said, explaining that “some of the buyers are starting to pause and evaluate positions.
“There are firms that made a lot of acquisitions last year and now have to integrate the business,” she said. “Closing the deal is one thing, but integrating it is another.”
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