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The RIA M&A Environment: Slowing, But Still at Historically High Levels

After an absolutely torrid run, mergers & acquisitions activity in the RIA space has seen two consecutive quarters of decline for the first time since 2018, according to the industry watchers at DeVoe & Company[1].

Signs of slippage in the pace of deals emerged in Q4 of last year, when the number of deals declined by 20% versus Q4 2021, while the deal total in Q1 of this year was 7% off the total from Q1 2022.

So is the great decade-long boom in RIA M&A over? Hardly.

Q1’s deal total, while off last year’s mark, is still the second highest ever tracked by DeVoe (which it should be noted only includes transactions involving RIAs with more than $100 million in AUM) and is still 80% higher than the deal total tracked in Q1 2020, which is when the number of firms in motion seemed to truly take off.

It will likely be quite some time before we see the number of deals dip back to or below those pre-pandemic levels but the events of the past six months, even the last month+, have absolutely introduced greater uncertainty into the minds of those firms that may have been weighing an M&A action.

Private equity firms and large consolidators seem to have pulled back on some of their efforts in the face of rising interest rates as their cost of capital increases; a flurry of banking crises has shaken confidence in the space, put a number of teams in motion, and removed from the equation entirely some firms that had previously been attractive destinations for talent; and the mid-sized-RIA-as-acquirer model has been showing some cracks as it has emerged that some of these would be acquirers were themselves acquisition targets, a potentially unsettling surprise for a smaller RIA that finds itself going from being acquired by one firm to being subsumed by a second, altogether unexpected, and much larger firm.

As the DeVoe team also noted, in a recent survey, 45% of advisors expect M&A to increase this year, while 25% expect a decrease, and another 30% just aren’t sure. Not being in the prediction business ourselves, we’d likely align ourselves with that 30% camp and instead return to one of our core philosophies, namely that every firm is unique and needs to weigh its options according to a whole host of factors, including growth ambitions, succession planning needs, access to essential services and solutions, the desire for upfront money as part of any transaction, and, not to be lost in all of this, what’s best for the end client.

Will M&A activity continue to slow down? Maybe. Prudence, after all, is the better part of valor. But M&A is just one option that advisors have when they think about their respective choices. Understanding those options is key to cutting through the noise about RIA M&A and determining the best path forward.

[1] First Quarter 2023 – DeVoe & Company RIA Deal Book