The registered investment adviser market posted 75 mergers and acquisitions in the second quarter, up from 90 in the first quarter of 2024, according to the latest from Echelon Partners M&A RIA deal report. But Echelon said activity is strong, given that the second quarter has historically been the least active period. In fact, it was the second most active quarter on record, up 15.4% from the year-ago quarter.
The activity also points to the possibility that cheaper financing could be forthcoming, Echelon said. Rising interest rates over the past two years led to a “temporary decline in deal volume,” the firm said.
“Over time, the continued supply of willing sellers and the promise of strong returns spurred greater creativity in financing and deal structuring leading to the elevated activity seen in the third quarter of 1-23-24,” Echelon said in its report. “Now with discussions of a possible rate cut in late 2024 and more in 2025, a slight optimism for less expensive financing may return. The strong activity of 2Q24 compared to 2Q23 may be the first sign that this optimism is starting to materialize.”
Echelon said 2024 is on pace to deliver the second-highest annual deal volume on record. They project 2024 to see 332 transactions, up 3.4% from 2023, when deals reached 321.
Deal size is also breaking records, with average assets by 2024 per deal at $2.3 billion, up from nearly $1.7 billion in 2023 and breaking 2021's record of $2.1 billion.
“Assuming capital markets remain stable in the second half of 2024, we expect 2024 average deal assets to meet or exceed the currently forecast 2024E level, which is $2.344 billion.
This year is on track for a 20.5% increase in average AUM per deal compared to the 2019-2023 annual average.
Echelon tells about deals made by Cerity Partners, See Investment Partners AND Clearstead Councillorsall of which exceeded $5 billion in assets.
Private equity firms continue to increase their participation in the RIA space. While 84% of the second quarter's transactions (63 deals) were completed by strategic buyers, nearly 71% of these deals involved private equity-backed firms. Financial buyers, which include private equity firms, family offices, holding companies and similar investors focused on generating returns rather than synergies, announced 12 transactions during the quarter, involving $655 billion in assets, up nearly 87% than the quarter of the previous year.
“This increase can be attributed to increases in the capital markets over the past 12 months and an increasing number of large platforms requiring additional capital,” Echelon said.
Minority investments continue to gain importance as some new players, such as Joe Duran's Rise Growth Partners, and Karl Heckenberg Wealth of the constellation Capital and Jim Dickson's Height point, come to space. The number of minority investments made by private equity firms rose nearly 17% from the first quarter, “as more RIAs are seeking capital injections to achieve partial liquidity or support their inorganic growth strategies.”
One of the most prominent minority transactions during the quarter involved Advent and the Abu Dhabi Investment Authority taking a stake in billionaire Ken Fisher's Fisher Investments worth up to 3 billion dollars. While Fisher's valuation, at $12.75 billion, may raise eyebrows in the wealth management industry, active investment bankers in the space agree it was likely a fair assessment for a firm of Fisher's size, scale and organic growth rate.