“Six out of the last eight quarters we’ve seen an average of at least 20 deals,” says Beatty. “This new quarterly average seems to be sustainable moving forward. The long trend is an upward sloping line, which reflects demographics and the need for solutions to business challenges being felt within the industry.”
The average annual deal size grew again from $1.37 billion in 2015 to $1.44 billion in 2016, a 5 percent increase. In two years, the average deal size has increased by 64 percent, from $878 million in 2014, according to Schwab.
In Echelon’s report, average AUM per deal increased from $897 million in 2015 to $1.05 billion in 2016.
Schwab found 28 transactions involving more than $1 billion in AUM, up 22 percent from 23 deals in 2015 and up 250 percent from 8 transactions in 2014.
Echelon reported 43 deals involving wealth managers with more than $1 billion in 2016, 20 breakaways and 23 mergers and acquisitions – down from 52 total transactions involving more than $1 billion AUM in 2015. Ten of the deals in the 2016 analysis involved firms with $10 billion AUM or more – the largest being the purchase of AIG Advisor Group, with a reported $160 billion in AUM, by Lightyear Capital and PSP Investments.
“There are a ton of deals in this $250 million to $1 billion space, but the firms we hear about are usually the ones seeking $1 billion or more because they’re driven by the acquisition of additional assets,” Armitage says. “A lot of these larger firms don’t want to bother with deals involving lower amounts of AUM, they don’t want to build out from collecting several small books of business, that they don’t take part in these deals -- so the firms that are involved in these smaller deals rarely advertise them. So many deals are under the radar, or under $1 billion, or internal transfers, there’s no central repository for reporting M&A activity -- but we think that it’s happening.”
Echelon believes that RIA M&A activity is extremely undercounted throughout the year and that the totals reported in their DealBook and elsewhere represent snapshots of a narrow portion of the industry. According to their “conservative” estimates, nearly 4 percent of the 300,000 advisors in the financial industry are involved in a deal of some sort each year -- meaning 12,000 advisors either change jobs or leave the business in any given year. Echelon assumes an average firm size of five registered advisors, placing the real number of advisor transactions closer to 2,400 -- 800 of which involve RIAs whose primary business is wealth management.
Schwab’s analysis reflected transactions involving primarily high-net-worth and endowment-focused RIAs with AUM exceeding $50 million.
Echelon Partners RIA DealBook is an amalgamation of all mergers, majority equity sales/purchases, acquisitions, spin-offs, capital infusions, consolidations and restructurings involving SEC-registered RIAs with over $100 million in AUM.