DeVoe: 2023 Could Be First Down Year for RIA M&A In Nearly A Decade

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RIA mergers and acquisitions are declining, and if the trend continues, 2023 will be the first down year for M&A activity in nearly 10 years, according to DeVoe & Company’s second quarter RIA Deal Book report.

DeVoe counted 57 total deals in the second quarter, a 15% decline from 67 in the second quarter of 2022. DeVoe attributed the slowdown to “an unusually light June,” and the decline marked the third consecutive annual second quarter with a lower number of deals.

On average, M&A deals have steadily dropped for approximately 18 months, from a high of 76 in 2021’s fourth quarter (the highest number since the beginning of 2019). The number of M&A deals for the first half of 2023 (120) is down 11% from 2022’s first half, which saw 135 deals.

“Both buyers and sellers are a bit more timid in the current market,” DeVoe’s report stated. “The macroeconomic conditions of high inflation, continued high interest rates and long-standing uncertainty in the economy and financial markets are likely weighing on the industry’s M&A activity.”

Despite the downturn, acquirers are mostly optimistic about the immediate future, with four out of 10 respondents to DeVoe saying they planned to maintain their current pace of deals in the next six months, while 53% planned to increase the number of deals. Seven percent indicated they plan to lower the number of acquisitions.

Buyers are also becoming choosier, with 40% of respondents saying they were “highly selective, more selective than before” about potential deals, compared to 27% reporting the same in December 2022.

RIA consolidators, who primarily focus on acquiring firms, executed nearly half the deals in the first half, but that category is steadily losing ground to RIAs buying firms. Consolidators did 54% of deals in 2021, but that number dropped to 49% in 2023’s first half. RIA buyers closed 28% of the first half of 2023’s deals, compared with 23% of deals through 2021. 

The most active consolidator during the first half was Wealth Enhancement Group, at seven deals, followed by Merit Financial Advisors with six; Captrust, Cerity Partners, Beacon Pointe Advisors and Hightower all closed five deals each. DeVoe also noted private equity was making a bigger splash in the space, closing 8% of the total deals during the quarter.

Smaller sellers (with between $100 million to $500 million in AUM) , continued the 18-month trend of leading the number of acquisitions; at 57 deals, smaller sellers were involved in nearly half of acquisition activity the past quarter. Firms with between $1 billion to $5 billion had 34 deals for the first half, two more than the same period of last year.

“Mega firms” (defined as more than $5 billion in assets) also increased their activity from this same point in 2022, with 13 deals in the first half, compared to nine for the previous year period. 

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However, mid-sized firms between $501 million and $1 billion “stayed on the sidelines,” according to DeVoe. This group had 12 sales in 2023’s first half, in line with the same period in 2022, which amounted to 13% of total transactions, a significant dip below the 23% share from 2021 and 2022 combined.

Acquirers are continuing to look beyond primary wealth management markets like New York, California and Florida, singling out Minnesota in particular. The state had rarely seen more than a single transaction in any given quarter, other than a boom of three transactions in 2022’s second quarter.

“Then Q2 2023 happened: Seven Minnesota firms sold in the period,” the report revealed. “And the appeal is broad—only one buyer executed more than one transaction.”

Massachusetts followed behind, with six sales in the second quarter, followed by Pennsylvania and Texas, each of which saw five deals during the quarter.

https://www.wealthmanagement.com/ria-news/devoe-2023-could-be-first-down-year-ria-ma-nearly-decade

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