RIA merger and acquisition activity roared in the new year, as 2021 started with another record-breaking month, according to DeVoe & Company’s report on M&A activity for January, which was released Wednesday.
January was the most active M&A month on record, continuing its heightened pace of the past seven years, DeVoe & Company said. This trend is expected to continue for several months, though not for several more quarters.
The 29 transactions in January reflected a 61% increase from the previous monthly record of 18 transactions in January 2020. Though the firm has logged only one month of deals, the January volume sets the stage for more than 50 transactions for the entire quarter. The industry crossed the threshold for 40 deals in a quarter for the first time in the third quarter of last year.
David DeVoe, founder and CEO of DeVoe & Company, said in a statement that the volume stems from a number of dynamics playing out in the RIA industry. The Covid-19 crisis has forced financial advisors to confront the succession plans for their firms. At the same time, firm valuations are high, and sellers are interested in gaining scale.
“More often than not,” he said, “a single factor drives the urgency, but several combined factors contribute to the ultimate decision [to sell]."
2020 saw a strong increase in deals worth $1 billion or more. DeVoe & Company predicted there will be a new surge in activity this year for firms with $500 million to $1 billion.
When transactions greater than $5 billion were excluded, the average AUM for sellers in January was $958 million. This is a slight decrease from the 2020 average of $1.02 billion.
An unusual number of acquirers announced several transactions in a single month. Mercer Advisors, Beacon Pointe, Hightower and CAPTRUST each acquired two or more RIAs during January. In most cases, the negotiations had begun last year.
“We believe this extreme level of activity is unlikely to be sustained for several quarters,” DeVoe said. “Should the industry experience a series of months with more than 30 transactions, there would likely be a decrease in valuations, and some sellers [would be] left without their favorite buyers. The industry is still experiencing an unusual surge, but eventually it will likely revert toward a compression in volume and a 'new normal' of activity later this year."