M&A market for RIAs sprints to record start in 2010
Deals are mostly smaller thus far but activity behind the scenes is intense
3 min read- RIA M&A volume reached a record high in Q1 2010, totaling 24 deals.
- Advisors managing under $250M drove over half of the increased deal volume.
- Rising valuations and urgency for scale are fueling increased RIA M&A activity.
Brooke’s Note: Because of scheduling issues I did not get the chance to interview David DeVoe, managing director of the strategic business development group, before publishing this article and relied on his department’s M&A report. If I reach him in the next few days, I will add his thoughts to this article.
The volume of RIA mergers and acquisitions deals got off to a record start in this year’s first quarter, according to Schwab Advisor Services.
There were 24 deals closed during the three months ending March 31 and those deals totaled $19 billion of assets under management or an average of $842 million per deal, according to the latest statistics provided by the big San Francisco-based asset custodian.
Schwab did not disclose how many deals were done in the first quarter of 2009 for comparison but RIAs completed 71 M&A transactions for all of 2009 and the average deal was $1.456 billion.
If deal volume were to continue at this rate throughout the year, RIAs would have a record year of 96 deals. The previous high was 88 deals in 2008. The average deal size that year was $1.558 billion.
8 major points to understand about the M&A market at the start of 2010
No fluke
The uptick in deal volume is no fluke and likely will sustain itself into the future, according to David Selig of Advice Dynamics Partners, an RIA M&A firm in San Francisco.
“Based on the work we’re doing…we’re having many more discussions with active merger partners than in 2009 – a noticeable uptick,” he says.
David Selig: Valuations have been creeping
up.
Mike Watson, director of product development at TD Ameritrade Institutional who also oversees his company’s M&A program, says he’s noticing the same pick-up in deal activity among RIAs who hold assets at his Jersey City, N.J.-based firm.
Story Timeline
The RIA M&A market stumbled in 2012, but giants were not deterred, Schwab end-of-year data shows
“A lot of advisors went into hibernation the last couple of years,” he says. “Since early this year, we’ve seen renewed interest.”
Sense of urgency
M&A market for RIAs continues record pace: Second half looks even stronger
One prevailing factor sparking that interest has been the sense of urgency smaller practices are feeling to be part of a bigger firm. Many of them became unprofitable during the downturn of the past couple of years and realized the advantages of scale in weathering a financial storm, according to Watson.
Indeed, Schwab notes that more than half the deals it counted in its research were with advisors who oversee fewer than $250 million in assets.
“Deal size is down,” the company noted in an e-mail from a spokeswoman sent for this article.
There are factors that makes smaller deals more likely to close, Selig says. There is furious demand for larger RIA firms from a host of buyers so they can afford to play it coy.
This is not necessarily the case with smaller firms.
Bird in the hand
“The bird in the hand is better than two in the bush is the modus operandi for the smaller firm,” he says.
Yet there may be a more fundamental factor driving higher deal flow in 2010 – the ability to get paid more.
“Valuations have been creeping up,” Selig says. “As long as both partners are flexible on the deal structure, they’re getting a higher valuation.”
Rely on RIABiz? Tell Google.
Naming us a preferred source puts our reporting first in your Top Stories and AI Overviews. Takes one click, and only you see the difference.