Fidelity Institutional released quarterly M&A figures this week that revealed RIA deals slowed in the first three months of 2024—down 6% from the previous quarter and down 29% from the same period last year.
At the same time, the average amount of transacted assets increased by 27% compared to the first quarter of 2023, according to Fidelity's calculations, and by a fifth throughout the year.
“Talking to investment bankers and strategic buyers, we heard overwhelming agreement that the first quarter of 2024 had a more authentic start as January was not burdened with the spread of December 2023,” according to the report's authors. “A look back at the calendar provides confirmation, as the first five days of January produced four transactions compared to nine transactions during the same period in 2023 and 17 transactions to start the first five days of January in the record year of activity 2022.”
Fidelity found private equity continues to be active in the space; while the number of deals tracked fell by 10 from a year ago to 34, they also represented an average of $106 million more in transacted assets. Since 2020, Fidelity has annually counted no less than a dozen private equity firms investing in billion-plus RIAs for the first time, with up to 17 new entrants in 2021. In the first quarter of 2024 there were at least two – Alvarium X , which bought a stake in AlTi Globaland Peloton Capital, with one investment in Trilogy Financial Services.
Fidelity said PE firms are feeling the pressure to compete and noted that RIAs seeking expansion capital through a private partnership should be prepared to relinquish some control over decision-making.
“For example, depending on the level of involvement in decision-making, the PE firm may weigh in on an RIA's desire to build (or buy) additional services that may have upfront costs without immediate ROI. This process can have a give and take, as spending capital to build additional services can be the cost of doing business to build a more stable customer base.”
The report highlights the growing trend towards the addition of “nearby” services, such as taxes and insurance, showing Mariner's massive deal to acquire institutional pension firm AndCo, with more than $90 billion in client assets, and Trivium Point's acquisition of Lyons and Lyons CPA firm. Both were announced in January.
“Younger investors are seeing the world differently than their baby boomer counterparts, aiming to achieve peace of mind and ultimate fulfillment,” according to Fidelity. “In response to changing client needs, some RIA firms are expanding their capabilities by adopting related practices, recognizing the need to adapt and evolve.
“It's important to look at RIA M&A through a broader lens, reviewing overall trends rather than comparing quarter-over-quarter activity,” said Laura Delaney, Fidelity's VP of Practice Management & Consulting. “In doing so, it shows us that unless the underlying reasons for M&A or investment enthusiasm from private equity and equity backers are drastically eroded, M&A can be thought of as a long-term business evolution strategy.”
Fidelity has counted 92 buyers that have done two or more deals since 2015, while 20 of the top-buying firms accounted for roughly 60% of all deals.
“With the consolidated group of buyers continuing at this rate, it could be a five-decade marathon before our industry is considered consolidated,” Delaney said, noting that there are more than 15,000 SEC-registered firms in the largest market. big.
While the report ultimately found that valuations remain consistently high for “high-quality” firms, the authors noted a “growing sentiment that despite the industry's underperformance, there was no significant increase in organic growth, EBITDA multiples and valuations the total number of firms may begin to decline (all other conditions being equal).
“For the valuation party to continue, organic growth must RSVP soon,” Delaney said.
Fidelity's data is compiled from public information and excludes firms with less than $100 million under management.
Other industry trackers, including investment banks MarshBerry and DeVoe & Co., have indicated their first-quarter reports will suggest deal activity could be headed for another record year.
In RIA talent and deal news reported this week: