The number of mergers and acquisitions of financial advisory firms for the first quarter of the year maintained a record-setting pace for the third quarter in a row, according to DeVoe & Company Q1 RIA Deal Book released Monday.

The three-month total of 34 was marked by an especially active January with 18 deals, followed by a slower pace of nine in February and seven in March. Covid -19 was not responsible for that slowdown but will have a profound impact in the months to come, the report predicted. The slowdown then will be followed by an overly-active period and finally a return to normal growth. This process played out over a couple of years following the Great Recession, DeVoe said.

“RIA businesses of all shapes and sizes will be directly and indirectly affected by this evolving situation. M&A activity will be part of that broader dynamic,” according to the report. “The pandemic and the market decline are a shock to the system, which affects the psychology of both buyers and sellers. We believe that despite this shock, most transactions that are currently in a later stage of the process will be signed and closed.”

Transactions that are in the early stages of negotiations now will likely be put on hold for awhile, but that does not mean no activity will be taking place.

“During this decrease in signed deals, the actual activity – early- and mid-stage M&A activity — will be at heightened and intensive levels [although] fewer announcements” will be made, the report said.

M&A activity has been at record highs for several quarters, and even those rates probably will be surpassed once normalcy is restored. “Delayed deals will come to market. Advisors who were shocked into action [by the pandemic] will have their deals signed. Advisors will also join enterprise level firms to both gain access to better capabilities, as well as have some potential shelter in an uncertain world,” DeVoe said.

In 2010, M&A volume spiked 54%, following the lull in 2009. Given the different dynamics of the new world, one might expect a similar or even larger increase this time, the Deal Book noted.

For the first quarter of 2020, large RIA buyers made up the bulk of the deals. Creative Planning, Savant Capital, Cresset Capital and Frontier Wealth Management all had one transaction, and Fiduciary Trust Company International, a wholly owned subsidiary of Franklin Templeton, acquired Athena Capital and The Pennsylvania Trust Company.

In recent activity, firms have sold in order to gain scale more than for succession planning, which is healthy for the industry, DeVoe said. “For over two years now, advisors have improved their businesses and lives by carefully selecting larger firms that can help them better achieve their business – and personal – goals.”

 

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