Third-quarter merger and acquisition stats on the RIA channel continue to show a strengthening market, according to Schwab Advisor Services, but the trend could be sidetracked if stock market volatility extends too long, says David DeVoe, Schwab’s managing director of strategic business development.
“If it’s over an extended period, advisors start to focus their time and energy on taking care of clients. As a result, the transactions get put on the back burner,” DeVoe says.
There were 17 deals in the third quarter, and 44 year to date, down slightly from the 47 deals in the first three quarters of 2010. But the third-quarter numbers are still stronger than their comparable showings pre-2010, DeVoe says. And the size of the companies being bought this year has steadily risen, from $8 billion in AUM in the first quarter to $16.9 billion last quarter. Valuations have steadily risen from the circa-2008 levels, he adds.
It may seem counterintuitive that deals are closing amid the neck-snapping market activity of the past two and a half months, but DeVoe points out that deals often take nine months to a year to complete; the ones that closed in the third quarter began before the volatility started.
Regional banks and private equity firms showed more strength this year than they have historically, DeVoe says. Among the notable deals in private equity last quarter: Carlyle Group taking a minority stake in Avalon Advisors in Houston, with $4 billion in AUM; Warburg Pincus taking a stake in The Mutual Fund Store in Kansas City; and Rosemont Investment Partners’ minority stake in Westmount Asset Management in Los Angeles (AUM of $1.4 billion.)
“The pipelines for investment banks and consolidators are strong,” DeVoe says. “However, if we do see an extended period of market volatility or decline, that could dampen the number of deals that get done.”