Mergers and acquisitions in the registered investment advisor space reached a record high in 2017 with a total of 153 transactions, a 6% increase over the previous year, according to DeVoe’s 2017 RIA Deal Book cited by Financial Advisor. However, through the second half of the year, the rate slowed by 26%, and is currently growing at a slower pace than previous years, the publication writes.
How Merger and Acquisition Activity Shifted in 2017
Advisors moving from independent broker-dealers, wirehouses or other independent advisory firms to RIAs accounted for more than 40% of transactions, Financial Advisor writes. The bulk of the moves occured in the first half of 2017 in anticipation of the Department of Labor’s fiduciary rule, but slowed by 50% in the second half of the year, according to the publication.
Furthermore, DeVoe found that the third and fourth quarters of 2017 had the lowest levels of merger and acquisition activity in nearly two years, Financial Advisor writes.
There were 86 established RIAs sold in 2017, up from 79 in 2016, but again this slowed in the second half of the year, with only 15 of those transactions recorded in the fourth quarter, the publication writes. RIA consolidators were responsible for half of the purchases, while 31% were bought by other RIAs and 8% by banks, according to Financial Advisor.
Furthermore, the average size of RIA sales dropped to $881 million, down from $1 billion in 2016, the publication writes. However, the sale of RIAs with assets over $5 billion more than doubled from four in 2016 to 10 in 2017, according to Financial Advisor. The number of RIAs sold with assets of $100 million to $250 million also increased, from 54 in 2016 to 67 in 2017, according to the publication.
As large firms like Morgan Stanley, Citigroup and UBS exited the Broker Protocol, their advisors and brokers left too, and this trend is expected to increase in early 2018, Financial Advisor writes. It is unlikely that the tax law reforms will affect merger and acquisition activity in 2018, as RIA owners will pay taxes of 37% rather than the new 21% corporate rate, due to exceptions in the law, the publication writes.
Due to corporations paying higher valuations than other potential buyers, there may be a greater number of RIAs with corporate structures, according to Financial Advisor.
Merger and acquisition activity is expected to have some short- and mid-term volatility, but maintain its pace, the publication writes. This is due to a stable and growing economy, high valuations and a significant number of qualified buyers offsetting the risk of a market correction, Financial Advisor writes.
