Private equity capital continues to flow into the independent wealth management space; in fact, strategic acquirers (primarily private equity-backed RIAs) and financial acquirers (primarily private equity firms) accounted for about 85% and 15%, respectively, of the total deals done in the third quarter, according to Echelon Partners’ latest RIA M&A Deal Report.
There were 74 total RIA deals announced in the third quarter, 63 of which were done by strategic acquirers, which are “firms such as RIAs and broker/dealers that acquire firms to realize synergistic efficiencies, enter new markets, or introduce new service offerings,” Echelon stated. Of those 63 deals, 46% involved buyers with private equity backing. Year-to-date, Echelon counted 241 deals, including 205 by strategic acquirers and 36 by financial acquirers.
Just 11 deals were done by financial acquirers in the third quarter, but those deals represented $552 billion in acquired assets under management. (That excludes Bain Capital and Reverence Capital’s deal with Envestnet.) That includes eight minority investments, including Charlesbank taking a stake in Aprio and TPG’s investments in Homrich Berg and Creative Planning. Echelon projects transaction volume for minority deals to reach 41 by the end of 2024. That compares to 35 minority deals in 2023 and 34 in 2022.
Year-to-date, private equity firms have made 33 direct investments and 122 indirect investments via private equity-backed firms. That accounts for about 64% of total deals for the first three quarters of 2024.
Overall, the third quarter saw 74 deals, compared with 75 in the second quarter and 90 in the first quarter. Though deal activity remained stagnant between quarters, Echelon found “signs for optimism,” including that large acquirers continued raising capital, with many indicating they were closing deals at the end of the quarter that would be announced later this year.
“The recent capital raises and solid 3Q24 performance are indicators of ongoing seller supply and acquirer optimism,” the report stated.
As of now, Echelon is estimating the total number of M&A deals to land at 330 for the year, exceeding 2023’s 321 deals. According to Echelon, part of 2023’s lower number stems from the Federal Reserve’s interest rate hikes over the past several years, leading to a “temporary drop in deal volume,” particularly an anemic second quarter of 2023.
“Expectations for a stable rate environment began in late 2023, driving buyer confidence and acquisition activity upward. Now, with the first of a series of interest rate cuts officially in place, ECHELON expects an uptick in transaction volume in 4Q24 and 2025,” the report read.
Echelon also found the deals were getting larger compared to last year, with 33 deals totaling more than $1 billion, compared to 25 such deals in 2023’s third quarter, a 32% jump. Echelon expects the number of $1 billion-plus deals to rise in the fourth quarter, as well, estimating about 130 total such transactions. This would exceed 2023 and 2022, though it falls short of 2021’s 145 deals exceeding $1 billion.
