Deal Data

Third Quarter 2020 Executive Overview

Executive Overview: The third quarter of 2020 was the most active in the history of the wealth management industry. After a brief slowdown in Q2 deal volume, wealth management M&A activity has returned to an all-time high level.

Rapid Rebound: The quick recovery in equity markets experienced in Q2 allowed normal deal activities and discussions to resume in Q3. Many deals that were delayed due to the sudden economic impacts of COVID-19 in February and March returned to their normal cadence, contributing to the most active quarter of M&A in the industry’s history, with a record level of 55 deals captured in the quarter.

Deal Size: Notably, we continue to see strong valuations for RIA firms, with larger and more established firms engaging in M&A activities – both as buyers and sellers. This is an ongoing trend that has been developing for several years, but the firms that are being acquired in 2020 are now some of the largest – with an average of over $1.7 BN in assets – and most professionally run organizations in the wealth management industry. In total, there were 23 firms with more than $1 BN in assets acquired during the third quarter – also a record level.

Buyer Composition & Competition: Professional buyers – which include platforms, consolidators and aggregators – and their interest in acquiring larger RIAs firms, fueled a substantial amount of deal activity during the third quarter. Firms such as Creative Planning and Hightower Advisors, for example, announced nine deals during the third quarter alone, accounting for 11% of the total overall activity. With heightened competition between professional buyers over high-quality sellers, we anticipate this trend will continue and that it will play an increased role in M&A activity moving forward.

Outlook: With strong valuations, the emergence of established buyers, access to financing, and increasing deal structure diversity, sellers have more options than ever before. We anticipate deal activity will remain near record levels, and potentially surpass 2019’s record deal volume, if economic conditions remain stable.

 
Wealth Management Deals
Q3 RIA M&A Deal Volume Rebounds to Record Level After Coronavirus Drop

Q3 experienced a swift rebound to dealmaking activity, as levels returned to their pre-pandemic norms and surpassed quarterly records in 2019 in terms of volume. The quarter’s 55 deals demonstrate a 57% increase in transactions compared to Q2 of 2020, which had been the quarter with the least amount of deal activity since Q3 2017.

Q3 experienced a swift rebound to dealmaking activity, as levels returned to their pre-pandemic norms and surpassed quarterly records in 2019 in terms of volume. The quarter’s 55 deals demonstrate a 57% increase in transactions compared to Q2 of 2020, which had been the quarter with the least amount of deal activity since Q3 2017.

 
Breakaway Activity
Breakaway Activity Continues to Rise in Q3 2020

Breakaway volume has continued its upward trend after Q1 2020’s especially low level of activity. Since Q1, breakaway activity has increased by over 52%, with Q3 logging the most third quarter breakaways since ECHELON began tracking this data.

Percentage Breakdown of RIA Acquirers by Firm Type
 
RIAs More Acquisitive in 2020

Pure-play RIAs were the most active acquirers, completing 35% of the transactions in the quarter and 40% of deals so far in 2020. The percentage of deals completed by Strategic Buyers or Consolidators increased significantly in Q3. These Buyers accounted for 38% of the deals announced this quarter, compared to 20% in Q2 and 33% in Q1. Banks continue to be the least active category in terms of deal activity, completing only two deals in Q3, or 4% of total transactions in Q3 2020. The "Other" category – including broker-dealers, private equity asset managers, and retirement benefits platforms – saw its share of deals remain steady in Q3 and account for 5% of transactions to date in 2020.

 
Average AUM per M&A Deal
Average Deal Size Increases

There has been a continued increase in the average deal size, with Q3 alone averaging ~$2 BN AUM transacted. The month of September was especially notable with eight $2 BN+ AUM deals ranging from direct Private Equity investments (e.g. Berkshire Partners investment in EP Wealth Advisors) to retirement plan consolidation deals (e.g. Empower acquisition of MassMutual’s retirement plan business).  

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ECHELON RIA M&A Dealbook

© ECHELON Partners 2020. All rights reserved. Securities offered through ECHELON Capital Partners, LLC, member of FINRA/SIPC. ECHELON Partners and ECHELON Capital Partners, LLC, are affiliated companies.

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