The registered investment advisor market posted 75 mergers and acquisitions in the second quarter, down from 90 in the first quarter of 2024, according to Echelon Partners’ latest RIA M&A 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 second quarter on record, up 15.4% from the year-ago quarter.
The activity also points to the possibility that cheaper financing may be coming, Echelon said. The rise in interest rates over the last couple years led to a “temporary drop in deal volume,” the firm said.
“Over time, the continued supply of willing sellers and the promise of strong returns prompted greater creativity in deal financing and structuring leading to the elevated activity seen in 3Q23-1Q24,” Echelon stated in its report. “Now with discussions of a possible rate cut in late 2024 and more in 2025, slight optimism for less expensive financing may be returning. 2Q24’s strong activity relative to 2Q23 may be the first sign that this optimism is beginning 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 totaled 321.
Deal size is also breaking records, with 2024 year-to-date average assets 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 steady in the second half of 2024, we expect 2024's average assets per deal to meet or exceed the currently projected 2024E level,” which is $2.344 billion.
This year is on track for a 20.5% increase in average AUM per deal relative to the 2019 to 2023 annual average.
Echelon points to deals done by Cerity Partners, Arax Investment Partners and Clearstead Advisors, all of which exceeded $5 billion in assets.
Private equity firms continue to increase their participation in the RIA space. While 84% of second-quarter transactions (63 deals) were completed by strategic acquirers, nearly 71% of those deals involved firms with private equity backing. Financial buyers, which include private equity firms, family offices, holding companies and similar investors that focus on generating returns rather than synergies, announced 12 transactions during the quarter, involving $655 billion in assets, up nearly 87% from the year-ago quarter.
“This increase can be attributed to the increases in capital markets over the past 12 months and to an increasing number of large platforms that are seeking additional capital,” Echelon said.
Minority investments continue to gain prominence as some new players, such as Joe Duran’s Rise Growth Partners, Karl Heckenberg’s Constellation Wealth Capital and Jim Dickson’s Elevation Point, come into the space. The number of minority investments made by private equity firms was up nearly 17% from the first quarter, “as more RIAs are seeking capital injections to achieve partial liquidity or to support their inorganic growth strategies.”
One of the most prominent minority transactions during the quarter involved Advent and Abu Dhabi Investment Authority taking a stake in billionaire Ken Fisher’s Fisher Investments worth as much as $3 billion. While Fisher’s valuation, at $12.75 billion, may raise eyebrows in the wealth management industry, investment bankers active in the space agree it was likely a fair valuation for a firm of Fisher’s size, scale and organic growth rate.