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Echelon Reports Second Busiest Q1 for RIA M&A

Private equity participation picked up after a 2023 dip, five deals involving over $20 billion in assets were announced and a couple of new names appeared on the list of top buyers.

Ninety registered investment advisory firms were fully or partially acquired in the first quarter of the year, according to industry-focused investment bank and transaction advisory firm Echelon Partners. 

Echelon’s count makes it the second busiest Q1 since the firm began tracking RIA M&A activity in 2017. It lags only the tail end of 2021 and the first half of 2022, which consecutively saw 99, 94 and 91 deals, and the last quarter of 2023, with 95. 

Seventy-seven deals announced in January, February and March were done by ‘strategic acquirers,’ including RIAs and other financial services firms seeking talent, capabilities, synergy or succession. The remaining 13 involved ‘financial acquirers’ looking for a return on investment, including family offices, holding companies and private equity firms. The transactions involved more than $200 billion in client assets.

Financially driven activity increased by 85.6% over the previous quarter, even as total assets in those transactions decreased by almost 80% from $1.1 trillion to $225 billion. Echelon attributes this to “several” fourth quarter private equity investments in large firms, including Genstar’s reinvestment in $374 billion Cetera and Kudu Investment’s stake in $24 billion Sage Advisory Services.  

Only two of five deals involving RIAs with more than $20 billion in the first quarter were direct private equity investments, Flexpoint Ford’s stake in Public Trust Advisors and the dual investment in AlTi Global by Constellation Wealth Capital and Allianz X.

While direct investments fall under the financial category, Echelon found private equity was involved in 69% of all transactions announced. That represents a rebound from 62% in 2023 after a record 70% in 2022, following the leap from about 25% in 2020 to 68% in 2021. 

Echelon CEO Dan Seivert said he doesn’t anticipate indications that high rates will persist for longer than expected to negatively impact private equity participation in 2024, pointing out that “interest remained quite strong during the period of interest rate increases.” 

Five years ago, the firm noted private equity had gained “a new appreciation for the recurring revenue associated with the wealth management industry,” pointing to a 235% increase from 34 deals in 2017 to more than 80 in 2019 (about 39% of all deals done that year).  

Echelon predicts 330 transactions will be announced this year, shy of the record 341 deals seen in 2022 but ahead of last year’s second-place tally of 321. Seivert said the factor most likely to impact end-of-year results is the performance of the S&P 500.  

“Over 4,000 things should be great,” he shared in an email. “Over 5,000, things are even better.” 

MAI Capital Management led the pack in deal count at the end of the first quarter, while Mariner Wealth Advisors picked up the most assets. Notably, five of the quarter’s most active acquirers have private equity partners. 

MAI, backed by Galway Insurance Holdings and Wealth Partners Capital Group, burst out of the gate in January with four deal announcements that added more than $2 billion in assets.

Mariner Wealth Advisors, a familiar name to industry dealmakers, is minority-owned by Leonard Green Partners. Amid several high-profile lawsuits, the RIA announced three deals, including acquiring AndCo Consulting and Fourth Street Performance Partners in early February, which added $104 billion in collective client assets and established an in-house institutional retirement plan division. 

Other names among the top six include Mercer Advisors, owned by Genstar, Oak Hill Capital and Atlas Partners, and Allworth Financial, belonging to Lightyear Capital and the Ontario Teachers’ Pension Plan. With three deals each, Mercer picked up $3.2 billion, and Allworth acquired $800 million.  

Perigon Capital Management and Diversify Advisory Network are new to the list this year. 

Perigon, the recipient of private equity capital from Karl Heckenberg’s new investment firm Constellation Wealth, followed up with three deals totaling $800 million in assets in February and March.  

Diversify, the only top acquirer to eschew external funding, announced three inaugural additions to the acquisitive arm of its newly restructured family of businesses.  

“For almost all of the firms doing four or more deals a year … their economic proposition is buying dollar bills for 50 cents,” Seivert noted. “You don’t need too many new or additional reasons beyond that.” 

Seivert expects the entrance of new investors like Constellation and Joe Duran’s Rise Growth Partners to benefit the larger marketplace in 2024 and beyond.  

“It is awesome to have more than a few options,” he said. “Wealth managers will benefit greatly from the lenders and minority investors having some competition. Default rates and missed payment rates in wealth management are perhaps the lowest of any industry, so lenders are very attracted to the space but have been, in some cases, overcharging relative to the risk. Most structures for preferred lending have a ‘heads they win, tails they win more’ structure. More competition is necessary to bring spreads in line with the associated lack of risk. 

“I think Constellation will do more deals with larger and more accomplished firms,” he added. “Merchant has a great head start. There will be plenty of business for Rise and those that come after them.”   

The number of deals involving financial technology firms, also tracked by Echelon, fell to 13 from 20 at the end of 2023. The report highlights the diversity of companies in the wealthtech arena, pointing to deals such as BlackRock’s acquisition of SpiderRock Advisors to expand SMA services and F2 Strategy’s acquisition of outsourced marketing firm Sky Marketing Consultants. Lightyear Capital and Lee Equity bought minority stakes in technology-supported retirement planning services.  

“You are not seeing a lot of new TAMPs or portfolio accounting solutions or CRM solutions or financial planning solutions,” Seivert said. “In the last five years, many firms have moved into the custody space.” 

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