RIA M&A deals slowed in second quarter

Financial advisors selling their firms found a cooler market in the second quarter. 

The number of M&A deals announced in wealth management fell 29% year over year to 65 transactions in the second quarter, according to the latest deal report released by investment bank and consulting firm Echelon Partners on July 10. The news came as Fidelity and others in the industry reported growing hesitation and pickiness among buyers, as well as more demands in deal contracts.  

Read more: Despite 237% M&A surge, half of deals go up in smoke, Fidelity says

Nonetheless, the past three months were the second most active second quarter for deals "in industry history," Echelon said in the report, adding that the results reflected historical performances for the second quarter, which is typically the most sluggish of the year for deal announcements. 

"Wealth management M&A remains resilient," Echelon said in the report. 

It cited data from S&P Global showing that the value of all types of M&A deals in the U.S. had fallen 44% in the first half of 2023 compared to a year ago. In that span, the size of deals in wealth management have ballooned by 38% in terms of total assets under management changing hands. 

Dan Seivert, the CEO and managing partner at Echelon, said in an interview that new private equity-backed players would still face an uphill struggle to keep up with more established buyers like Mercer Advisors and CI Financial, among others. 

"It's been our experience that the new firms in the process have a little bit of rustiness, and they're not as agile and smooth in their dealmaking," Seivert said. "Whereas those who have been around and doing a number of transactions, they're well honed machines."

If anything, advisors who want to sell can look forward to big contracts — if they have a big enough book, that is. Around half of the deals involved a seller with over $1 billion in client assets, according to Echelon. Wealthtech purchases were also hot, with 30 transactions reported — as firms compete to offer best-in-class services to discerning clients. 

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"So many of these deals are getting financed through private equity money," said Jodie Papike, the president of recruiting firm Cross-Search, adding that private equity buyers have shown a willingness to pay premiums for these highly stable businesses. 

The report said all of the firms who announced the most number of deals in the first half of 2023 were private equity-backed, in keeping with that observation. 

"That's why the valuation of practices has pushed up and up and up over the last several years, because there's just so much more money being pumped into our industry — specifically in acquisitions," Papike said.  

However, that's likely slowed lately because of rising interest rates, Papike said. 

"A lot of private equity firms lean on interest rates and the cost of borrowing to decide how much they want to pay for practices," Papike said. 

Recruiter Frank LaRosa, the CEO of Elite Consulting Partners, said that private equity's presence would likely contribute to major brokerages like LPL Financial and Cetera Financial Group and Raymond James getting more aggressive offering to buy practices already in their networks, as they've already done in some cases. 

"I think that's going to happen more and more and more," LaRosa said in an interview. "What that also might do is continue to drive prices up on deals."