In what was likely pent-up demand being released, RIA merger and acquisition (M&A) deal volume surged in the third quarter, rising to its highest point in over a year, according to ECHELON Partners’ newly released Deal Report.
There were 86 transactions announced in the wealth management sector in the third quarter, a rebound to levels of deal activity not seen since early 2022. ECHELON attributes this increase to the continued influence of fundamental forces driving consolidation in the industry, and to buyers and sellers gaining confidence in the macroeconomic environment relative to late 2022.
“Most transactions take on average nine months to complete, so Q3’s increase is likely reflective of the increased economic optimism buyers and sellers began to feel in early 2023 as capital market conditions started to improve,” the report states.
Meanwhile, with industry consolidation remaining as prominent as ever, strategic acquirers continue to dominate the wealth management M&A ecosystem, accounting for nearly 91% of all transactions disclosed in the third quarter. Consequently, strategic acquirers have now announced 198 total transactions in 2023, the report shows.
Of the 78 deals announced by strategic acquirers in the third quarter, roughly 58% have involved firms with private equity backing. Financial acquirers announced eight deals in the third quarter, matching the previous quarter. These eight transactions, however, involved nearly $900 billion in acquired AUM, due largely to The Carlyle Group’s investment in the $832 billion AUM CAPTRUST. In contrast, strategic acquirers’ third-quarter transacted AUM totaled $219 billion.
And while RIAs continue to dominate the overall wealth management buyer market, ECHELON notes that this quarter’s largest transactions included a diverse group of RIAs, private equity firms, insurance companies, pension plans, and asset managers. For instance, Goldman Sachs was both a buyer and seller in the quarter’s top deals, acquiring a stake in World Insurance Associates (via GSAM) while also selling Goldman Sachs Personal Financial Management—created after its acquisition of United Capital Financial Partners—to Creative Planning.
Given these trends, ECHELON anticipates that 2023 M&A activity will mirror the trend observed in 2020 and 2021—a relatively quiet second quarter, followed by a strong rebound in activity in the third quarter, exceeded by an even more active fourth quarter. Still, while ECHELON’s projection for total 2023 deal volume has increased from previously forecasted totals, the firm still expects a “marginal decline” from last year’s record level of 341 deals.
Deal Size
Meanwhile, despite a slowdown in $1 billion-plus AUM transactions in the third quarter, the 2023 year-to-date (YTD) average deal size continues its ascent over 2022 levels. According to the report, 2023 YTD average assets per deal equal $1.7 billion, slightly exceeding 2022 levels of $1.62 billion.
Assuming capital markets remain stable for the remainder of the year, ECHELON anticipates that the average assets per deal for 2023 will surpass the levels seen in 2022, possibly even reaching the second highest annual level on record.
Among the key drivers of this year’s 4.3% year-over-year growth in average assets per deal is an increase in equity markets and the consistent deployment of newly raised capital by firms like Mercer Advisors, Corient, HUB International, and CAPTRUST, the report notes.
ECHELON estimates that large wealth platforms raised an incremental $7.2 billion to pay down debt, increase resources for acquisition and invest in growth.
To that end, top consolidators all announced at least one billion-dollar-plus transaction in the third quarter, in addition to six $20 billion-plus AUM transactions announced in the third quarter, suggesting that there is still “ample interest” for transactions involving the largest players in the industry, the report further observes.
The Carlyle Group’s minority growth investment in CAPTRUST was the largest transaction of the quarter. The deal quotes a valuation over $3.7 billion—an increase of almost three times relative to the valuation CAPTRUST received in 2020 when GTCR purchased a 25% stake in the company.
Overall, there were 25 deals involving at least $1 billion in assets in the third quarter, but that represents a 30.6% decrease relative to the second quarter’s total of 36 $1 billion-plus deals.
