Echelon: M&A investment adviser bucks deal downtrend

Mergers and acquisitions (M&A) activity has been stalled in many industries, but it’s still going strong in the investment adviser and brokerage space in 2022, according to the investment bank and consultancy managed by Echelon Partners.

M&A activity in wealth management increased year-over-year to 84 deals in the third quarter of 2022, from 78 deals in the third quarter of 2021, Echelon said. Deal-closing activity was down from the previous two quarters of 2022, but the company still expects a total of 345 deals in 2022, surpassing 2021’s total of 307 deals.

“Deal activity in wealth management remained relatively resilient despite a global slowdown in mergers and acquisitions, which was spurred by rising interest rates and geopolitical instability,” Echelon said in its Third Quarter RIA Mergers & Acquisitions Report released this week.

Dealing activity among Registered Investment Advisers (RIAs) has grown steadily since 2020 and by the end of this year will likely reach a record high since Echelon began reporting in 2016 Acquisition interest in RIAs is largely driven by private equity that sees value in consolidating players in the crowded, maturing wealth management industry, says Brett Mulder, vice president of RIA. Echelon Partners.

“It looks like these forces will continue to propel activity at least in the short term,” Mulder said.

Meanwhile, market volatility can create an opportunity for investors, rather than being a deterrent. “They can potentially take advantage of any dislocation created by market volatility,” Mulder said.

Echelon said 42% of deals through the third quarter of 2022 were closed by strategic acquirers or consolidators, and private equity firms directly invested $80 billion in assets under management (AUM) over the course of the year. trimester.

Demand for legacy technology solutions, including those from startups, has also been a driver of mergers and acquisitions, according to the report. Interest in technology-based product distribution, artificial intelligence, and automated billing are all driving interest in transactions.

Offers up, AUM down

Although the number of transactions was robust, the average AUM per transaction since the beginning of the year fell to $1.7 billion, 17% below the average of approximately $2.1 billion of last year, according to the report. The decline is indicative of declining assets under management, with stocks and bonds falling, Mulder said. Of the deals that were announced in Q3 2022, 43% of acquired businesses have less than $1 billion under management, and average assets under management handled under the deals were approximately $389 million.

The relatively small deal size means that rising interest rates, which make borrowing to fund deals more expensive, are often not a problem for acquirers, Mulder said. Many private equity firms fund deals from their own credit facilities or from capital on their balance sheets, he says.

According to a semi-annual report of the consulting firm PWC. The company also notes headwinds such as the war in Ukraine and falling stock markets, saying traders are “facing arguably one of – if not the – most uncertain and complex environments in recent memory.” .

Despite these headwinds, the M&A adviser and investment continues to grab headlines in Q4. In the past few weeks alone, deals have been announced, including private equity firm Platform Partners LLC agreeing to invest in growth plans the pension company JULY Business Services and the private equity company Valeas accepting a $200 million minority stake in wealth manager Sequoia Financial Group.

CAPTRUST, publisher of retirement solutions, also bought a Boston-area adviser who oversees $900 million in assets. CAPTRUST has other acquisitions in the works, said Rick Shoff, managing director of CAPTRUST’s advisor support group.

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