Adviser M&A Deals Bounce Back in Volume, Worth in Q1

Echelon’s quarterly M&A report found private equity financing helped push Q1 2023 numbers above Q4 2022 results.


Big dealmaking in the registered investment advisory space has bounced back after four consecutive quarters of decline in 2022, according to an Echelon Partners report released Wednesday.

In the first quarter of 2023, Echelon reported 11.6% quarter-on-quarter growth in average assets per deal, as well as 75 transactions completed, as compared to 70 in Q4 2022. Much of the total deal volume of $1.2 trillion was driven by private equity funding, according to the Manhattan Beach, California-based consultancy.

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“Private equity firms played a significant role in 1Q 23’s deals, being either directly or indirectly involved in 77.3% of all transactions,” the Echelon report stated. “Some of the industry’s largest RIAs, such as Focus Financial, Mercer Advisors, and Pathstone, received direct investments from private equity firms this quarter.”

The rebound ends a four-quarter run of declining deal activity in the busy RIA space, which in recent years has seen consolidation of financial and retirement advisories, as noted by Echelon and others who track the space. In 2022, deal activity was strained by rising interest rates that increased the cost of capital, as well as concerns about market strength with a drop in both stocks and bond value, the researchers noted. Even with that slowdown, the rampant activity in the RIA space at the start of the year led to what ended up being the biggest deal volume since Echelon started tracking the data in 2017.

2023, while starting out strong, has also had its dramas. The Q1 rebound is “particularly notable” considering the market uncertainty from the collapse of Silicon Valley Bank in March, according to Echelon.

“Overall buyer and seller demand remained elevated through the first quarter of 2023 and is expected to incrementally increase throughout the rest of the year and into next,” Echelon wrote. “Dealmaking activity continues to be propelled by long-term secular trends that will continue to persist.”

Creative Dealmaking

In the current market, with high interest rates making the cost of capital higher, the firm expects buyers to continue getting deals done with equity deals, earnouts and cash payment. The consultancy projects an estimated 315 deals reaching completion in 2023. That is slightly lower than 2022, but eight deals bigger than 2021.

The firm noted that strategic acquirers outpaced financial acquirers by a rate of 64 to 11 in the quarter. Echelon defines strategic acquirers as other RIAs or broker/dealers that acquire firms to build their teams and assets, enter new markets or bring on new service offerings. Financial acquirers include investors who are focused on generating returns.

While private equity players are often among financial acquirers, much of the PE money in the M&A advisory space comes from investments in strategic acquirers, according to Echelon.

Overall, financial acquirers, while fewer, were involved with larger deals, with an average asset size of $4.8 billion, as compared with $1.3 billion by strategic acquirers.

Much of that dealmaking is expected to be for wealth managers with at least $1 billion in assets, as those firms “tend to have experienced management and established processes and platforms,” Echelon wrote.

Buy Low

Among the biggest deals of the quarter included First Citizens BancShares’ purchase of Silicon Valley Bank two weeks after the firm’s collapse. First Citizen also took on the bank’s wealth management unit, which had more than 3,000 clients and $17 billion in assets under management, according to Echelon.

Another large deal was Cetera Group’s acquisition of Securian Financial Group’s retail wealth business and Securian Trust Company. The deal brought more than $72 billion in assets to advisory Cetera’s platform and included a partnership in which Cetera’s financial advisers can distribute Securian Financial’s individual life and annuity products.

The largest direct investment made by a private equity firm, according to Echelon, was Clayton, Dubilier & Rice’s acquisition of Focus Financial Partners that took the company private. Focus, with $350 billion in assets under management, was one of the few publicly traded firms in the wealth management industry, Echelon noted.

Deals, on average, take about nine months to complete, Echelon noted in the report, so while these transactions were booked in Q1, many of the conversations were started in 2022.

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