After mergers and acquisitions activity in the registered investment advisory space declined year-over-year for three consecutive quarters, dealmaking picked up again in the third quarter of 2023, according to M&A consultant DeVoe & Company. While year-to-date activity is still down about 7% from last year, a very slight increase seen in the first 11 weeks of the third quarter represents a notable trend shift, according to DeVoe.

“We really kind of plateaued in the first three quarters of 2022 and then moved into this period of steady decline, so this may indicate that some shoots are breaking through the surface and we’re heading back into a period of increased activity,” said DeVoe Founder and CEO David DeVoe, sharing a mid-quarter update and some preliminary results from an outlook study during the firm’s annual M&A+ Succession Summit, held in Dallas last week.

August was the most active month of the year so far, with 27 posted transactions, and July was third, with 23. September saw 11 transactions through the first three weeks of the month, putting the current quarter just one deal, or 2%, ahead of the same time last year, and four (7%) deals ahead of the previous full quarter.

Despite the uptick, 2023 is still on track to be the first year in almost a decade that activity is down.  

“It may eke out another record year,” said DeVoe founder and CEO David DeVoe, sharing a mid-quarter update and some preliminary results from an outlook study during the firm’s annual M&A+ Succession conference, held in Dallas last week.

“But right now, the indications are that we’ll end just a couple of percentage points lower.”

The pool of RIAs included in the data—over $100 million and under $5 billion in AUM—comprises about 7,000 firms. Of those, 264 announced transactions last year, a number DeVoe described as “healthy,” but lower than expected given the number of potential players.

Acknowledging that high interest rates and other fiscal headwinds have caused some to pause or proceed with greater caution, DeVoe still expects the need for succession and scale to drive increasing levels of activity over the mid- and long-term.

“Part of that logic is because of the demographics of this industry and the average age of a founder is in their mid-sixties,” he said. “How many firms need to retire and sell to the next generation or sell externally? That indicates that we should be seeing more than 300 transactions a year.”

At the same time, several M&A+ panelists agreed that the increasing participation of private equity is likely to keep valuations at or near record highs for attractive RIAs, creating a widening barrier to internal succession.

Just 18% of advisors surveyed in DeVoe’s incomplete outlook study are confident the next generation can afford to buy their firm, down from 29% last year and 38% in 2021. Forty-five percent are certain they can’t afford it, while 37% said they don’t know.

“It’s not a shock because over time these organizations increase in value,” said DeVoe. “They’re often increasing at a rate faster than the buying power of G2 or even G3.”

It’s imperative to begin the planning process early, he said, even if an internal sale ultimately proves unviable. “Each year that you procrastinate and wait another quarter, another year, another two years, your grasp on your employees gets shorter and they become even more unable to afford the firm.”

Nearly two-thirds—65%—of advisors expect to complete an acquisition in the next two years, according to DeVoe’s data, up from 54% last year.

“M&A is sexy; it’s interesting,” DeVoe said, pointing out 65% of all 7,000 firms tracked by the firm would amount to around 2,750 deals, or more than five times the amount done in the last two record years.

“That’s not really going to happen in this space,” he said. “So, be prepared. Put on your gear and get ready to go into battle. You’re going to be competing and you want to be really thoughtful about how you’re competing.”

The average size of acquisitions tracked by DeVoe through the first three quarters of 2023 remained unchanged from all of 2022, at $827 million, while the percentage of sub-acquisitions dipped slightly, from 22% to 20%.



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