Although private equity continues to dominate the deals over $1 billion, the number of deals made by RIA firms acquiring other RIAs also continues to grow. RIA acquirers dominated overall deal volume through the second quarter of 2019, according to Echelon, with 36 RIA-to-RIA transactions. If the trend continues, this category will see a year-over-year increase of 132%.
In total, 2019 could see 200 RIA transactions by year’s end, a record volume for the wealth management industry, Echelon says.
Driving the higher volume is the better availability of financing, the increased number of peer-to-peer deals, more PE owners encouraging portfolio firms to make acquisitions, and historically high valuations, Seivert said.
On that last point, though, Seivert added this warning: A 20% drop in the stock market could cause a 70% drop in RIA valuations as revenues, margins and valuation multiples all fall.
That risk could be weighing on potential sellers. Over the past year, Seivert said he's seen a “very meaningful change in the mind-set of sellers,” who are now more serious about finding a buyer. These aging RIA firm owners have in many cases been unable to establish internal succession plans, he said, so they are willing to consider a third-party buyer.