The frenzy of M&A activity that began in the second half of 2020 rolled over into 2021 as strategic and financial buyers continued their transformative deal making in the wealth management industry, according to Echelon Partners.
ECHELON’s Q1 2021 RIA M&A Deal Report showed the first quarter as the most active M&A period in the industry’s history with 76 deals, a new quarterly record and the third consecutive quarter in which a new record was established.
The deals represented a 10% increase over the 69 record deals in the fourth quarter of 2020 and a 117% increase over the low of 35 at the height of the Covid crisis in the second quarter of 2020, the lowest level of deal activity since 2017, ECHELON said, noting that 2021 is on pace to be the ninth consecutive year of record-setting activity.
The report attributed the record setting activity to several factors, including strong market conditions, increased competition from buyers and favorable deals for sellers. The deal-making activity was also accelerated by anticipation that the Biden administration could introduce higher capital gains taxes that could go into effect in 2022, the report said.
The average assets under management per transaction in the first quarter also outpaced historic levels. There was a total of 33 $1 billion-plus AUM deals, ECHELON said.
The record-breaking AUM and assets under administration during the quarter reached more than $1.5 trillion, driven by mega-deals, with the largest being led by private-equity capital. In February, Wells Fargo Asset Management (WFAM) was sold to private equity firms GTCR and Reverence Capital Partners L.P. for $2.1 billion, a deal in which WFAM brough $603 billion in AUM to the table.
Following in order of largest AUM transactions for the quarter were Voya’s sale of more than $40 billion of assets to Cetera Financial Group; Warburg Pincus’ recapitalization of the $260 billion Edelman Financial Services; CAPTRUST’s acquisition of Cammack Retirement with $154 billion in AUA; and Aquiline Capital’s purchase of SageView Advisory Group with $120 billion in AUA.
ECHELON noted that strategic acquirers and consolidators continue to dominate deal making, accounting for 35 deals, or 46% and a total of $2.2 billion in AUM for the first quarter. Private equity-backed platforms continue to dominate within this group, with Mercer Advisors (majority owned by Oak Hill Capital) leading the pack. They announced eight acquisitions in the quarter, bringing their total announced deals since the start of 2020 to 15. Other active players included CAPTRUST(GTCR), Beacon Pointe Advisors (Abry), and Cetera Group (Genstar), the report noted.
There was a decline is RIA-to-RIA transactions that drove deal activity in 2020, the report said. Pure-play RIAs announced only 22% of transactions in the first quarter compared to the 40% of announced deals they were responsible for in 2020, the report said. The drop, ECHELON noted, is linked to the increase in average AUM per transaction so far in 2021. RIA transactions are relatively smaller than other deals, averaging around $450 million per deal this quarter, compared to the quarter’s average transacted AUM of more than $2.3 billion.
Breakaway activity continues to decline with 124 recorded in the first quarter, a 17% decline over the fourth quarter. The average breakaway AUM this quarter was $346 million, which fell short of 2020’s average of $502 million, but still 21.9% higher than 2019’s average AUM of $284 million. ECHELON pointed out that the low activity seen in the final three quarters of 2020 is not entirely unexpected, as activity in the first quarter tends to be lower than that in the final three quarters.