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RIA Roundup: Fidelity Records Drop in Q1 M&A Activity

Fidelity says deals are down 29% from a year ago, but the amount of assets transacted rose by nearly the same percentage.

Fidelity Institutional released quarterly M&A numbers this week that found RIA dealmaking slowed in the first three months of 2024—by 6% from the previous quarter and down 29% from the same period last year.  

At the same time, the median amount of assets transacted rose by 27% compared to Q1 2023, per Fidelity’s calculations, and by a fifth over the entire year.  

“In speaking with investment bankers and strategic acquirers, we heard overwhelming agreement that Q1 2024 was off to a more authentic start as January was not loaded with December 2023 spillover,” according to the report’s authors. “A look back at the calendar provides validation, as the first five days in January produced four transactions vs. nine transactions during the same period in 2023 and 17 transactions to start the first five January days in activity record-setting year 2022.” 

Fidelity found private equity continues to be active in the space; while the number of tracked deals fell by 10 from a year ago to 34, they also represented a median $106 million more in transacted assets. Since 2020, Fidelity annually has counted no less than a dozen private equity firms investing in billion-plus RIAs for the first time, with as many as 17 new entrants in 2021. There were at least two in the first quarter of 2024—Alvarium X, which bought a stake in AlTi Global, and Peloton Capital, with an investment in Trilogy Financial Services.  

Fidelity said PE firms are feeling the pressure to compete and pointed out that RIAs seeking expansion capital via a private equity partnership should be prepared to relinquish some control over decision-making.

“For example, depending upon the level of decisioning involvement, the PE firm may weigh in on an RIAs desire to build out (or acquire) additional services which may have upfront cost without immediate ROI. There may be a give-and-take to this process, as spending capital to build out additional services may be the cost of doing business to build a stickier client.” 

The report highlights the growing trend toward adding “adjacent” services, such as tax and insurance, pointing to Mariner’s massive deal to buy institutional retirement firm AndCo, with more than $90 billion in client assets, and Trivium Point’s acquisition of Lyons and Lyons CPA firm. Both were announced in January.  

“Younger investors are viewing the world differently than their baby boomer counterparts, aiming to achieve peace of mind and ultimate fulfillment,” according to Fidelity. “In response to shifting client needs, several RIA firms are expanding their capabilities by acquiring adjacent practices, recognizing the need to adapt and evolve.” 

“It’s important to look at RIA M&A from a wider lens, reviewing the overall trends rather than comparing activity quarter-over-quarter,” said Fidelity VP of Practice Management & Consulting Laura Delaney. “By doing so, it shows us that unless the fundamental reasons for M&A or the investment enthusiasm from private equity and capital backers are drastically wiped away, M&A can be thought of as a business evolution strategy for the long haul." 

Fidelity has counted 92 acquirers that have done two or more deals since 2015, while 20 of the most acquisitive firms accounted for roughly 60% of all deals.

"With the consolidated cohort of acquirers continuing at this pace, it could be a five-decade marathon before our industry may be considered consolidated,” Delaney said, pointing out there are more than 15,000 SEC-registered firms in the larger marketplace.  

While the report ultimately found valuations remain steadily high for “high quality” firms, the authors noted a “growing apprehension that despite the industry’s underwhelming performance, without a significant uptick in organic growth, EBITDA multiples and overall firm valuations may start to tick down (with all other conditions being equal).” 

“For the valuation party to keep going, organic growth needs to RSVP soon," said Delaney.  

The Fidelity data is compiled from public information and excludes firms with less than $100 million under management.  

Other industry trackers, including investment banks MarshBerry and DeVoe & Co., have indicated their Q1 reports will suggest dealmaking activity could be headed for another record year.  

In RIA deal and talent news reported this week: 

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