Expected Drop in Interest Rates Fuels Wealth Management M&A

The expected decline in interest rates is fueling an already-hot market for mergers and acquisitions among registered investment advisories, as retirement and wealth management continue to converge, according to the Echelon Partners “RIA M&A Deal Report” for the year’s second quarter released on Monday.

Interest rates saw a significant rise from early 2022 through August 2023, causing a temporary dip in deal volume, Echelon reported. However, the persistent supply of willing sellers and the potential for strong returns sparked greater creativity in deal financing and structuring, leading to heightened activity from Q3 2023 through Q1 2024.

“Now with discussions of a possible rate cut in late 2024 and more in 2025, slight optimism for less expensive financing may be returning,” the report stated. “2Q24’s strong activity relative to 2Q23 may be the first sign that this optimism is beginning to materialize.”

Based on the report, Q2 was the second most active Q2 on record, trailing only Q2 2022. Historically, Echelon indicated that the second quarter has been the least active for deal announcements in three of the last four years, but 2Q 2024’s robust activity underscores growing optimism in the wealth management M&A markets. The number of deals in 2024 is projected to surpass that of 2023, positioning this as the second most active in dealmaking over the past six years.

Notable transactions included the merger of Focus partner firms Buckingham Wealth and the Colony Group, creating a $115 billion platform, and Cerity’s acquisition of Agility, a $15 billion Denver-based OCIO and RIA, from Perella Weinberg Partners.

The second quarter of 2024 witnessed robust M&A activity in wealth management, Echelon reported, with 75 transactions announced, involving a total of $952 billion in assets transacted. As the year progresses, the industry is on track to see 332 deals completed by the end of 2024.

Financial acquirers, mainly private equity firms, announced 16% of the quarter’s deals, a small increase from 14.4% in the first quarter, the report revealed. Major private equity transactions included minority investments in Fisher Investments made by both Advent International and the Abu Dhabi Investment Authority and GTCR’s deal with AssetMark to take the $117 billion AUM/AUA turnkey asset management program private.

Private equity remains highly active in wealth management, directly participating in 16% of deals and involved as direct investors or sponsors in 70.7% of deals in the second quarter, according to Echelon. On average, the AUM per deal for the 12 direct investments by private equity investors in the second quarter was $54.6 billion, significantly higher than the average AUM for RIA deals, which stood at $3.7 billion.

Echelon stated that RIA acquirers engaged in a wide range of deal sizes, from $100 million to more than $45 billion in AUM. Notably, larger transactions were more prevalent among other strategic buyers. For instance, insurance giant Marsh McLennan acquired $66 billion AUM U.K.-based Cardano, marking the largest strategic acquisition in the second quarter. Meanwhile, Echelon Partners served as the exclusive financial adviser to $12.5 billion AUM/AUA TAMP Tru Independence in its sale to Sanctuary Wealth.

Echelon Partners’ “RIA M&A Deal Report” compiles data on mergers, majority equity sales/purchases, acquisitions, shareholder spinoffs, capital infusions, consolidations and restructurings involving RIAs registered with the Securities and Exchange Commission.