DeVoe: Advisory Dealmaking Outpacing Last Year’s Q3

Mergers and acquisitions activity among registered investment advisories in the year’s third quarter has already outpaced the same period in 2022, according DeVoe & Co.

As of September 13, transactions posted in the quarter reached 55, 4% more than the same period last year (53), the consultancy reported in a release and at their M&A+ Succession Summit in Dallas.

While 35% of advisers surveyed by the firm said higher interest rates influenced their dealmaking decisions, a greater percentage still expect to acquire a firm within the next two years, at 65% of those surveyed by DeVoe. That expectation of dealmaking compares to just 55% from last year.

DeVoe revealed that July and August were strong months, with 23 and 27 transactions, respectively. Deals did slow in early September, with only five transactions through September 13. Overall, the uptick in M&A activity in the quarter reverses the 15% decline the industry had experienced from Q3 2022 through Q2 2023.

“Given the steady slowdown in M&A activity over the last several quarters, this is a notable uptick,” David DeVoe, founder and CEO of DeVoe & Co., said in a statement. “RIA M&A activity may continue to be volatile in the short-term; yet the mid-term and long-term should be an upward trajectory. The aging of RIA founders and an increasing interest in scale are expected to drive increasing M&A activity for the next several years.”

The dealmaking has not yet put transactions on pace to exceed last year’s total, and DeVoe still predicts fewer total deals this year than last. Transactions posted year-to-date amounted to 175, compared to 188 transactions for the same period the previous year. 2023 could potentially be the first down year in a decade of annual M&A transaction increases, according to slides provided by DeVoe.

The last 12 months of slowdown coincided with high interest rates, uncertainty in the economic environment and a volatile stock market, DeVoe reported. Q4 2022 was the beginning of the decline, when transactions were 20% lower than same period the year before. The subsequent quarters saw continued drops, with a 7% decline in Q1 2023 and a 15% decline in Q2 2023.

Whatever the environment, private equity firms and other investors still appear bullish on potential consolidation in both wealth management and retirement. On Tuesday, Carlyle Group Inc. announced a minority growth investment in RIA CAPTRUST Financial Advisors to, in part, fuel the firm’s continued growth.

In August, Goldman Sachs Group Inc.’s asset management arm, along with Charlesbank Capital Partners, announced a $1 billion capital infusion in World Insurance Associates LLC, in part to help fuel World’s Pensiomark Financial Group with its wealth management acquisition strategy.

DeVoe’s research found that adviser sentiment may be shifting more toward acquisition by aggregators, as opposed to from within the RIAs. Only 18% of advisers are confident that the next generation can afford to buy out the founders, DeVoe said. Previous years’ confidence levels were far higher, 38% in 2021 and 29% in 2022, according to a slide presentation shared by the firm.