RIA M&A Activity Solid So Far in 2014

Schwab says the first half of 2014 saw 29 completed M&A deals totaling $32.6 billion in assets under management (AUM). Transaction activity picked up somewhat in the second quarter, with deal flow increasing from the first quarter. Sixteen deals were inked in Q2, totaling approximately $19 billion in AUM, compared with 13 deals totaling $14 billion in AUM completed in Q1.

Second quarter activity nearly reached the record high levels of Q3 and Q4 of 2013, according to Schwab Advisor Services. Those quarters each saw 18 completed transactions. The average deal size also increased during the first half of 2014, reaching $1.13 billion, compared with $808 million in the first half of 2013.

“While we see consistency in M&A activity in the RIA industry, with strategic acquiring firms continuing to show their buying power, we are not seeing the spike in industry consolidation that many analysts and observers have been predicting,” explains Jonathan Beatty, senior vice president of sales and relationship management for Schwab Advisor Services. “Based on the data in our research, it appears RIAs are indeed in a good position to monetize their firm’s value, but they are more often looking to preserve the owner-operator model and retain their independence through internal succession.”

Data from Schwab’s 2014 RIA Benchmarking Study, released in July, indicated that nine in 10 RIA firms are looking to develop internal successors. Schwab researchers say this suggests that founders and principles are seeking continuity of their firm’s people, culture and values.

Although M&A data for the first half of the year indicates a seller’s market in the RIA industry, many advisers are actually choosing not to sell. Instead, Schwab says they are continuing to grow organically and create value in their firms by building enduring enterprises (see “The Challenges of Expansion and Ownership Transitions”).

With more than one-third (36%) of all firms participating in the 2014 benchmarking study having doubled their AUM and revenues since 2009, the steady M&A activity this year also reflects the healthy ecosystem of the RIA industry, Schwab says. The RIA model continues to attract not just investors and advisers, but also more types of acquirers, in the U.S. as well as internationally.

M&A data for first half of 2014 showed activity among strategic acquiring firms moving upward from the levels of 2013, representing 38% of the total deals closed, versus 31% of deals completed by other RIAs. Additionally, Schwab’s data shows an increase in acquisitions by offshore-based entities, which represent 7% of the total deals recorded for the first half of the year.

“As RIA firms grow and continue to evolve into efficiently managed businesses built for enduring success, they will increasingly appeal to a broader range of buyers,” Beatty adds. “Internal succession is one of the best ways to strengthen, scale and grow a firm to potentially make it more attractive to a buyer. I expect we will continue to see consistent M&A activity in the coming months as acquirers seek opportunities and advisers consider more choices to monetize their firm’s value as part of a succession strategy.”

Schwab Advisor Services reports M&A industry data twice yearly and provides a variety of consultative services to help firms determine their transition options and plan strategically toward them.