DeVoe & Company breaks out the 5 waves of RIA M&A activity in their latest RIA Deal Book. The RIA industry is currently experiencing the initial impact of two new waves of RIA acquisition activity, which will likely contribute to accelerated consolidation. Understanding the Five Waves of M&A Activity helps provide context for our current and future acquisition environment.
Wave 1: Banks
Fifteen years ago, Banks dominated RIA M&A. Mellon, Wachovia, and others were acquiring 60% of the sellers – many of them $1B+ RIAs. With incremental revenue modeled from extensive cross-selling expectations, RIA valuations increased and moved toward the industry’s record high in 2008. However, the mortgage and banking crises eliminated Banks from the buyer pool – and they have only recently begun to re-engage with the opportunity.
Wave 2: Consolidators
After some false starts by Assante and NFP, the ‘Roll-Up’ model started to gain momentum in the mid-2000s. Consolidators like Focus, United Capital, and WealthTrust became acquisition machines, with refined business models and deep private equity pockets funding their efforts. From a peak of over 35 Consolidators in 2008, the group itself has consolidated. Some firms exited the business, others sold to broker-dealers or banks, and now some are being acquired by consolidators (HighTower announced they are acquiring WealthTrust). Consolidators are a dominant acquiring force in today’s market.
Wave 3: RIAs
As Consolidators became the headline story, RIA firms realized the potential power of inorganic growth – especially given the backdrop of aging RIA owners. Many RIAs quickly became more sophisticated in M&A and capitalized on the attractive pitch of “sell to us – we are an RIA and understand you”. RIAs have since arm-wrestled with Consolidators on a quarterly and annual basis for the leading market
share of sellers.
Wave 4: Private Equity-Backed RIA Serial Acquirers
After years of backing the business plans of Consolidators, Private Equity has recently changed tack. During the last few years, Private Equity has cut out the middleman and made direct investments in multi-billion dollar AUM firms – with the explicit intention to grow the acquired firm through additional acquisitions. Mega-firms such as Mercer, Wealth Enhancement Group, Carson, and now Edelman not only now go to market with the deeper pockets and M&A expertise of their private equity partner, but they also can tell the “we grew to several billion in AUM – we can help you do the same” story.
Wave 5: Sub-Acquisitions
Sub-Acquisitions have quadrupled since 2014 and now comprise 22% of all Established RIA transactions. Parent companies are providing their affiliates (previous acquisitions) with the capital and M&A expertise to become acquirers themselves. With well over 100 affiliates in the marketplace today – each of which can acquire mid- and small-firms that Consolidators would historically pass over, the potential impact of this wave may be profound.
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