RIA valuations increased less than 2% in 2024 as M&A activity heated up, according to a new study from Succession Resource Group.

After analyzing 176 M&A transactions completed in 2024, representing a transfer of more than $13 billion in assets under management, the Tigard, Ore.-based consultant firm found that “valuations appear to have returned to historical norms, increasing a modest 1.83% over 2023.”

This modest increase was noteworthy, the study said, partly because it showed that valuations weren’t particularly affected by modest adjustments to interest rates or the national election, the report said.

“There is a lot of noise out there around the value of an advisory practice,” said David Grau Jr., president of Succession Resource Group, in the firm’s just released ninth annual review of advisor acquisition activity.

That “noise,” he said, is making it increasingly difficult for business owners to determine reasonable valuations for M&A activity.

For valuations, the study found that nearly 63% of the M&A transactions were completed at between 2.5 and 3.5 times recurring revenue. “For the first time on record,” the study said, “none of the deals received a multiple below 1.50” times recurring revenue.

The report went on to say that M&A demand increased in 2024, with sellers receiving an average of five offers from prospective buyers, up from three offers a year earlier. The average time from listing to deal completion was 129 days, “an all-time efficiency record,” according to the report.

Private equity and private-equity-backed firms “remain active acquirers,” the report said, adding that they are “very selective, focused on specific markets, specific size businesses, and generally seeking to keep the seller involved and active for many years post-sale.” Putative buyers who do not have private-equity backing were “forced to either bring additional cash to close or adjust the purchase price to a more realistic figure,” the report said.

Asked about their succession planning, only 1% of respondents said they had a plan already written, and 24% said they had no plans to retire.

Too many advisory business owners make the mistake of chasing a higher valuation for their business, said Grau in the report. Instead, he said, business owners should keep “building a sustainable firm, optimizing their business, and remaining focused on the best fit for their clients at retirement.” This, he said, “will always win the day.”

The new year is “expected to remain active [in M&A activity] given the general lack of succession readiness and aging advisor workforce,” the report said. It predicted “increased deal volume and leveraging of external capital to complete deals, bolstered if interest rates remain flat or decrease.”

The SRG study followed an earlier report from DeVoe and Company, which found that RIA mergers and acquisitions in October alone shattered the previous monthly record, with the highest deal volume ever. According to the DeVoe RIA M&A Deal Book, which was compiled in collaboration with the Capital Group, and only counts transactions of $100 million or more in assets under management, the unprecedented activity level was largely due to anticipation of further interest rate cuts.

October’s spate of 39 deals was a jump from the 21 transactions recorded a year earlier. In a statement, DeVoe CEO David DeVoe said that the surge was “a conspicuous spike following nearly three years of unremarkable activity.”

He cited Beacon Pointe, Cerity Partners and Waverly Advisors as among the biggest consolidators. Each one, he said, completed three deals during the month.

A whopping 83% of the M&As in October involved private equity or private-equity-backed firms, the report said. It added that firms backed by private equity were the highest capitalized and therefore the most active consolidators.

Overall, in the first three quarters of 2024, the DeVoe study reported that there were 191 M&A deals, an increase from the 185 reported in the corresponding period one year earlier. For the third quarter alone, 65 transactions were announced, according to the report.