M&A Gets Off to a Flying Start
Art by Dalbert B. Vilarino
Although 2020 fell short of expectations in many ways, the predictions of numerous retirement plan adviser industry mergers and acquisitions (M&As) panned out. In fact, despite the ongoing challenges presented by the coronavirus pandemic, M&A activity in the financial services sector set another record.
According to data provided by Canadian investment bank Echelon Partners, at least 205 deals registered for the year, compared with the 203 deals that Echelon reported in 2019. The fourth quarter of 2020—i.e., through December 22—alone delivered 69 deals, which represents a new quarterly record. In fact, Q4 2020 brought a 25% increase over Q3 2020—the quarter that previously set the quarterly high-water mark at 55 total deals.
Echelon analysts say this represents an impressive rebound, given the significant slowdown in deals that occurred during the second quarter, when the pandemic seriously disrupted the normal course of business. In the end, 2020 marked the eighth consecutive year that the total number of transactions in the registered investment adviser (RIA) industry increased.
Sources agree that much the same is in store for 2021, both in terms of adviser-focused M&As and deals engaged in by advisers’ service provider partners such as recordkeepers and asset managers. Already, just a couple of weeks into the year, several major deals have been announced, including Aquiline Capital Partners’ private equity backing of SageView Advisory Group, and Truist’s division and sale of its recordkeeping and advisory businesses to Empower, Ascensus and OneDigital.
In its limited prognostications about 2021, the Echelon Partners’ analysis highlights that many new players have “flocked” to the wealth management and retirement plan advisory industry over the past year.
“Professional buyers continued their aggressive push to acquire high-quality RIAs, and the industry’s high profitability and steady cash flows are increasingly attracting new entrants and resulting in increased competition and higher valuations,” the analysis concludes.
By “professional buyers,” the analysis is referring to parties such as private equity firms or larger diversified financial services entities that work with clients across the investment, insurance and brokerage spectrum. The aforementioned deal between Aquiline Capital Partners and SageView represents the former case, while the various acquisitions already enacted this year by Hub International and OneDigital represent the latter—as does the acquisition of Compass Financial Partners by Marsh & McLennan Agency LLC (MMA).
All of these early 2021 transactions highlight the same pressures and opportunities that have been reshaping the retirement plan advisory industry for years. Commenting on the Compass acquisition, for example, Bill Jeatran, president of MMA, says the transaction represents a significant enhancement of MMA’s capabilities as the firm seeks to further integrate health, wealth and retirement services into its total well-being solution for clients. Besides its employee benefits-focused business lines, MMA also offers commercial property, casualty and personal lines of insurance.
CAPTRUST, another large advisory firm that is expected to be active in acquisitions this year, explains its goal as building a business model that can support advisers working with both private wealth management and institutional retirement plan clients. The firm’s leadership says the strategy is about creating a holistic service ecosystem that clients want and need, especially as the defined contribution (DC) plan system matures and becomes a key component of individuals’ retirement income.
Notably, CAPTRUST itself, last year, took on a minority investment from GTCR, a private equity firm mainly focused on leveraged buyouts, leveraged recapitalizations, growth capital and roll-up transactions. Other GTCR portfolio companies include organizations across the health care, technology and financial services spaces.