Ninety registered investment advisory firms were acquired in whole or in part in the first quarter of the year, according to industry-focused investment bank and transaction advisory firm Echelon Partners.
Echelon's tally makes it the second-busiest quarter since the firm began tracking RIA M&A activity in 2017. It trails only late 2021 and the first half of 2022, which saw 99, 94 and 91 deals respectively , and the last quarter of 2023, with 95.
Seventy-seven deals announced in January, February and March were made by 'strategic acquirers', including RIAs and other financial services firms seeking talent, capability, synergy or continuity. The remaining 13 involved 'financial beneficiaries' seeking a return on investment, including family offices, holding companies and private equity firms. The transactions involved more than $200 billion in client assets.
Financially driven activity increased by 85.6% over the previous quarter, even as total assets in these transactions decreased by almost 80% from $1.1 trillion to $225 billion. Echelon attributes this to “some” fourth-quarter private equity investments in large firms, including Genstar Reinvestment in 374 billion dollars Cetera and Shares of Kudu Investment in $24 billion Sage Advisory Services.
Just two of the five deals involving RIAs worth more than $20 billion in the first quarter were direct private equity investments, Flexpoint Ford's stake in Public Trust Advisors and the dual investment in AlTi Global by Constellation Wealth Capital and Allianz X.
While direct investment falls under the financial category, Echelon found that private equity was involved in 69% of all announced transactions. This represents a rebound from 62% in 2023 after a record 70% in 2022, after jumping from around 25% in 2020 to 68% in 2021.
Echelon CEO Dan Seivert said he sees no indication that high rates will continue longer than expected to negatively impact private equity participation in 2024, noting that “interest remained fairly strong during the increase in interest rates”.
Five years ago, the firm noted that private equity had gained “a new appreciation for the recurring revenue associated with the wealth management industry,” showing a 235% increase from 34 deals in 2017 to more than 80 in 2019 (about 39% of all deals made that year).
Echelon predicts 330 transactions will be announced this year, short of the record 341 deals seen in 2022, but ahead of last year's second-place ranking of 321. Seivert said the factor most likely to affect the results of year-end is the performance of the S&P 500.
“Over 4,000 things should be great,” he shared in an email. “Over 5,000, things are even better.”
MAI Capital Management led the pack in deal count at the end of the first quarter, while Mariner Wealth Advisors took most of the assets. Notably, five of the quarter's most active buyers have private equity partners.
MAI, backed by Galway Insurance Holdings and Wealth Partners Capital Group, burst out of the gate in January with four settlement notices that added more than $2 billion in assets.
Mariner Wealth Advisors, a familiar name to industry traders, is minority owned by Leonard Green Partners. In the middle several high-profile lawsuitsRIA announced three deals, including the acquisition of AndCo Consulting and Fourth Street Performance Partners in early February, which added $104 billion in collective client assets and created an in-house institutional retirement plan division.
Other names among the top six include Mercer Advisors, owned by Genstar, Oak Hill Capital and Atlas Partners, and Allworth Financial, owned by Lightyear Capital and the Ontario Teachers' Pension Plan. With three deals each, Mercer received $3.2 billionand Allworth earned $800 million.
Perigon Capital Management and Diversify Advisory Network are new to the list this year.
Perigon, private equity recipient by Karl Heckenberg's new investment firm Constellation Wealth, followed with three deals totaling $800 million in assets in February AND march.
Diversification, the only major buyer that avoids external financing, announced three inaugural additions in the acquisitive arm of her newly restructured family of businesses.
“For almost all firms that do four or more deals a year … their economic proposition is to buy dollar bills for 50 cents,” Seivert noted. “You don't need many new or additional reasons beyond that.”
Seivert expects the entry of new investors as constellation AND Joe Duran's Growth Growth Partners to tap the largest market in 2024 and beyond.
“It's great to have more than a few options,” he said. “Wealth managers will benefit greatly from small lenders and investors having some competition. Default rates and missed payment rates in wealth management are probably the lowest of any industry, so lenders are very attracted to the space, but in some cases have been overburdened relative to the risk. Most preferred lending structures have a 'heads win, tails win more' structure. More competition is needed to bring spreads in line with risk-related scarcity.
“I think Constellation will do more deals with bigger, more established firms,” he added. “The merchant is off to a great start. There will be a lot of work for Rise and those who will come after them.”
The number of deals involving financial technology firms, also tracked by Echelon, fell to 13 from 20 at the end of 2023. The report highlights the diversity of companies in the wealthtech arena, pointing to deals such as BlackRock's acquisition of SpiderRock Advisors to expand SMA Services and F2 Strategy's acquisition of outsourced marketing firm Sky Marketing Consultants. Lightyear Capital and Lee Equity bought minority stakes in technology-enabled retirement planning services.
“You're not seeing a lot of new TAMPs or portfolio accounting solutions or CRM solutions or financial planning solutions,” Seivert said. “In the last five years, many firms have moved into the custody space.”