A report explores trends in mergers and acquisitions in the RIA space, noting the roles of private equity firms, for example, among the acquirers.

Heavy deal volume, newcomers to the market and the increasing dominance of private equity investments highlighted registered investment advisor M&A in 2022.

Despite a 20 per cent slump in the stock market, rising interest rates and a steady decline in volume, advisory firms were nonetheless involved in a record-setting 340 transactions last year, a 10.7 per cent increase over 2021, according to ECHELON Partners.

The heavy deal volume was characterized by ECHELON’s latest RIA M&A Deal Report as a sign of the continued efforts of buyers to “consolidate the hyper-fragmented wealth management industry.” 

The big buyers
Mercer Advisors was the leading buyer with 20 deals, followed by two other experienced acquirers: Wealth Enhancement Group with 14 transactions and Creative Planning with 13 acquisitions. 

Mariner Wealth Advisors, another industry stalwart, bought 11 firms last year, but so did a newcomer to the roster of major aggregators, Merit Financial Advisors, an affiliate of Wealth Partners Capital Group.

Two other WPCG companies, MAI Capital Management and EP Wealth Advisors, were also big buyers in 2022, adding six and five firms respectively. Other RIAs that began to flex their buying muscle last year included Prime Capital Investment Advisors, Allworth Financial, Cerity Partners, Bluespring Wealth and OneDigital Investment Advisors.

Notably absent among active buyers was Canadian asset management giant CI Financial, which stunned the industry by swooping in with an open checkbook to snap up over two dozen firms in 2020 and 2021, quickly bulking up to over $100 billion in assets under management. 

But CI, which plans to take a portion of its RIA business public this year, stepped back last year amid market uncertainty and integration issues.

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Private equity ascendancy
Private equity firms were anything but absent in 2022. ECHELON estimates that over 100 PE firms are now involved in the RIA M&A market. “Nearly all of the most active strategic acquirers are backed by prominent private equity firms,” the ECHELON briefing noted.

Indeed, established private equity firms such as KKR, Bain Capital, Genstar Capital, Lovell Minnick and Thomas H Lee Partners remain firmly entrenched as backers of some of the industry’s largest and most acquisitive RIAs.

But competitors are snapping at their heels, as private equity firms including Vistria, Parthenon Capital and Penfund all bought major stakes in big RIAs last year.

Citing examples such as Genstar’s recapitalization of Cerity Partners, ECHELON highlighted the appeal – and advantages – of private equity: “These firms are staffed with robust M&A teams, have supreme access to capital and substantial integration resources, allowing them to complete large deals in times of economic uncertainty and rising interest rates.”

What’s next?
Industry observers noted that M&A deal volume is considered a lagging indicator, and fourth quarter volume slumped considerably. Average assets per deal fell 23 per cent last year to $1.6 billion, down from 2021’s record high $2.1 billion.  

As for this year’s M&A prospects, questions remain about valuations, deal terms, mega-consolidation and whether the market has shifted to favor buyers over sellers.

To date, however, the wealth management industry “has remained resilient from a deal volume perspective,” according to ECHELON.