When talking about RIA M&A activity, it appears that bigger really is better. According to The Echelon 2020 RIA M&A Deal Report, larger RIAs continue to be the most coveted by professional buyers as $1B+ RIA acquisitions helped buoy the continued torrid pace of RIA deal activity in 2020.
More record setting
According to Echelon, 205 deals occurred in 2020, a modest 1% increase in deal activity over 2019, and another record for annual RIA transaction volume. In addition, Q4 2020 set the record for deal volume in a single quarter with 69 transactions – a 25% increase over Q3 2020.
Larger deals lead the way
Leading the way were acquisitions of firms that had more than $1B in AUM. According to Echelon, 78 acquisitions, or 28% of deals in 2020 have over $1B AUM, with the average AUM of sellers coming in at $1.8B.
Flight to quality
It should come as no surprise that RIA transaction volume continued to flourish in 2020, as more and more well-capitalized buyers enter the M&A arena. Interestingly, the number of larger transactions may indicate a preference for “quality” by the buyers. Professional buyers are increasingly looking for well-established firms who have developed sophisticated operations, processes and technologies with steady revenue streams – capabilities that are often lacking in sub-$1B AUM firms.
What larger firms may lack, however, are formalized growth engines – including professional business development expertise combined with sophisticated digital marketing platforms – that can help them grow beyond the $1B AUM plateau. Professional buyers who possess these capabilities may be strong matches for relatively mature sellers, potentially portending the sustained strength of RIA M&A activity in 2021.