Acquisitions of private wealth management firms are expected to reach a record total this year after an especially busy first quarter with 94 deals — twice the number compared to the same period in recent years.
Echelon Partners, a boutique investment bank focused on wealth management firms and TAMPs, projected in a report Monday there will be a record 338 deals to acquire wealth managers in 2022, up from 307, or 10.1 percent, compared to 2021.
In the past, the first quarter of the year has been one of the weakest in terms of deal volume; there were 46 deals in 2018, 48 in 2019, 43 in 2020 and 44 in 2021. However, the normal seasonality didn’t appear during the start of 2022 due to of the overall increasing number of transactions.
The past three quarters have had the most deals on record. There were 78 deals during the third quarter of 2021 (a record at the time), a still-standing quarterly record of 99 deals in the fourth quarter of 2021, then 94 in the first quarter of this year.
Inflation, rising interest rates, the ongoing Covid-19 pandemic, and the war in Ukraine seemed to have little impact on wealth management firm buyers in the first quarter, according to Echelon’s report. “Fundamental tailwinds, such as buyer appetite and funding, quality business performance, and low financing costs relative to historical averages” kept activity strong, the bank said.
Buyers backed by private equity firms and flush with their cash continue to drive increasing deal volume. Strategic acquirers and consolidators were behind 55.3 percent of all transactions in the first quarter of 2022 (the category made up 48 percent of all deals in 2021). It was first time those types of acquirers accounted for more than half of all transactions since Echelon began tracking the categories in 2004. The next largest category included private-equity firms, insurance firms, and independent broker dealers, with 22 percent, and RIAs with 19 percent.
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An average seller in the first quarter was managing $2 billion in assets, down slightly compared to an average of $2.1 billion in 2021. Echelon said the lower average is due to smaller sellers entering the market that are hoping to capitalize on the trends that benefited their larger peers. Out of all the first quarter transactions involving sellers managing less than $20 billion in assets, about 60 percent of those sellers manage less than $1 billion in assets.
Expansion into international markets and more deals involving wealth-management-focused technology companies, are also driving deal, according to Echelon.
Investments in so-called wealthtech companies this year include $325 million invested in CAIS, an alternative investment platform used by more than 5,000 advisory firms with more than $2.5 trillion in assets on the platform.
Holly Deaton (@HollyLDeaton) is a staff writer at RIA Intel and based in New York City.
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