Before last year, the wealthtech mergers and acquisitions landscape was flourishing, propelled higher by a booming stock market—which to a large degree was fueled by the run- up in technology. Then, in 2022, that all changed. 

Tech faltered, succumbing to the pressure created by repeated Federal Reserve interest rate hikes. Financial sponsors responded by taking a more conservative approach to investing within wealthtech, with many shifting their focus from top-line growth to profitability. Strategic buyers largely did the same thing. 

Collectively, this caused wealthtech M&A activity to slow. Deals occurred, just not at the same pace or size as before. How has the space evolved since? Let's take a look. 

M&A activity has perked up. Before stocks slumped in August, markets had enjoyed a sustained, months-long winning streak, with the NASDAQ up nearly 40% year-to-date through the end of July. That caused tech multiples to expand once more, allowing many companies to become buyers after sitting on the sidelines in 2022. The largest transaction was Nasdaq's announced acquisition of Adenza, while others made some notable tuck-in acquisitions, including FNZ (YieldX), T Rowe Price (Retiree) and FactSet (Idaciti). 

Granted, the landscape is nothing like it was in 2021. But that period was an outlier, and no one should expect multiples—or deal activity—to return to those levels any time soon. That said, the current market is favorable for sellers that have something differentiated to offer, especially with private equity firms and strategic buyers becoming more aggressive.

Growth equity financing remains tough to come by— which is getting fintech firms to consider an earlier sale as a viable strategic option. Because the cost of debt has become so much higher since last year, some smaller fintech firms have responded by looking to strategic investors or acquirers as the quickest way to fund growth initiatives. Meantime, larger firms that bolstered their balance sheets during the recent low-interest-rate period are now well-positioned to be opportunistic.

Artificial intelligence driving conversations. The boom in artificial intelligence is largely responsible for the NASDAQ's run-up, with a host of companies seeing their stock prices go through the roof after ChatGPT first entered the nation's consciousness late last year. Since then, AI has become the topic du jour within wealth tech. 

Now, every firm, large and small, wants to say they use it in creative ways that allow advisors to work more efficiently. It's everything from enabling chatbots that take care of simple but often time-consuming service requests (i.e., retrieving investment statements) to being able to analyze data to uncover insights about a client. For firms, AI capabilities have gone from being a nice-to-have to a must-have in a matter of months. 

A slowdown in wealth management M&A won't have much of an impact. Most industry observers believe deal volumes in the wealth management M&A space will lag past years, including what happened in 2021, which, by most accounts, saw a record number of transactions. For some, the natural conclusion would be that the slowdown could spill over into wealth tech-related M&A. That's unlikely. That's because most buyers are service providers to large RIAs, many of which have a strong desire to attract and support quality advisors who manage hundreds of millions of dollars in assets, if not more. A big part of being able to do that is availing them of the best advisor and service desktop possible, allowing advisors to serve more clients than ever. If anything, slack in the wealth management M&A market would increase the focus on organic growth enabled by better technology.

Will wealth tech have a record year in 2023? No, but the sector is trending in the right direction. Big companies are newly emboldened thanks to rising valuations, while private equity remains hungry and strategic buyers are still active. The drive for more technology-led efficiencies to offset fee pressures will continue to be a catalyst in the sector.

Mitchell S. Spector leads Berkshire Global Advisors' Financial Technology coverage and practice.