Advisory firms are stepping up their game when it comes to M&A activity, a trend that bodes well for the industry at large.
Registered investment advisory firms represented 40 percent of the buyers in the 84 M&A deals tracked by Schwab Advisor Services in 2015. That’s up significantly from 2012, when RIAs made up less than 25 percent of buyers, and down slightly from 41 percent in 2014.
“The fact that we’re seeing more and more equipped buyers in the marketplace bodes well for M&A activity,” said Jon Beatty, senior vice president at Schwab Advisor Services. “There’s more billion-dollar-plus firms that have the scale—both from a human capital perspective, as well as from the financial capital standpoint—to make acquisitions.”
Beatty said RIAs will continue to be an active buyer class, especially as sellers grow in sophistication. While the industry tends to focus on valuations—and that’s certainly an important element—sellers tend to focus equally on the cultural fit, he added.
“If you’re a seller and your motivation is continuity for your clients and your employees, more often than not, you’re going to be looking for a like-minded buyer,” he said. “That’s why the RIAs have had such great success, as well as strategic acquirers, which are adept at understanding the industry and running firms.”
Sellers are always learning and watching deals made, whether they are successful or not. The other categories of buyers, such as banks and international acquirers, haven’t had as much success post-deal and therefore have been less attractive to sellers.
Schwab tracks independent advisory M&A activity among firms focused on high net worth and endowments with assets under management exceeding $50 million.