After a lackluster couple of quarters, deal activity in the registered investment advisor space surged during the third quarter of this year, with 86 transactions recorded during the period, the highest volume of deals in over a year, according to Echelon Partners’ latest RIA M&A Deal Report.
That’s up 32% from the second quarter’s deal volume of 65, and activity is on par with the third quarter of 2022. Echelon expects this year’s deal volume to surpass 2021 levels and rival 2022, ending the year at an estimated 315, compared with 341 in 2022 and 307 in 2021. That’s an increase from the investment bank’s previously forecast totals.
“We attribute this increase to the continued influence of fundamental forces driving consolidation in the industry and to buyers and sellers gaining greater confidence in the macroeconomic environment relative to late 2022,” the Echelon report said.
Although deal volumes could end the year lower than 2022, Echelon expects the average assets per deal to exceed last year’s levels. Year-to-date, the average assets per deal has been $1.7 billion, compared to $1.6 billion in 2022.
“Assuming capital markets remain stable for the rest of the year, we anticipate that the average assets per deal for 2023 will surpass the levels seen in 2022, possibly even reaching the second highest annual level on record,” the report said.
Many of the top consolidators in the industry, including Pathstone, Focus Financial Partners, Wealthspire and Corient, announced at least one $1 billion-plus deal in the third quarter. In addition, Echelon counts six deals involving $20 billion or more in transacted AUM during the quarter, including Cetera’s acquisition of Avantax, Creative Planning’s purchase of Goldman Sachs Personal Financial Management, and Abry’s deal with Prime Capital Investment Advisors.
The third quarter was also characterized by large direct investments by private equity players, showing interest in wealth management from that sector remains strong. In the third quarter, private equity acquirers invested in firms with assets totaling more than $877 billion, more than triple the same figure from the second quarter. Private equity sponsored investments are up by 133 year-to-date, and the large wealth platforms raised $7.2 billion to pay down debt, fund more acquisitions and invest in growth, Echelon said.