It’s beginning to sound like a broken record: M&A activity in the RIA market is booming with no signs of slowing. According to the Q1 2021 edition of Echelon’s RIA M&A Deal ReportTM, RIA deal activity reached (yet again) an all-time high. According to Echelon’s data, 76 M&A transactions were recorded in the quarter, besting the previous record of 69 deals in Q4 2020, which itself topped a record 55 deals in Q3 2020.
While the continued frothiness of this market may not come as a surprise to many, it is interesting to note who is responsible for the lion’s share of these transactions. The handful of buyers who dominated deal flow in Q1 share a common characteristic: they are largely professional buyers (platforms, consolidators, or aggregators) whose business models require continued M&A activity to drive their growth and expansion.
Overall, strategic buyers continue to proliferate and gain momentum, as strategic acquirers account for 46% of the deals announced in Q1 2021, compared to only 32% in 2020. Conversely, RIA-to-RIA transactions continue their comparative downhill slide as pure-play RIAs represent only 22% of the quarter’s transactions, down from 40% of all transactions in 2020.
Furthermore, professional buyers continue to acquire larger and seemingly more mature firms, while traditional RIAs are buying primarily smaller firms. RIA acquirer deal size averaged only $450 million AUM, while professional buyer deal size came in at $2.2 billion AUM in the quarter.
Clearly, the era of the professional buyer is upon us, with a multitude of firms including Mercer Advisors, Beacon Pointe and Focus Financial each executing at least four transactions in the first quarter. While we don’t expect RIA-to-RIA M&A activity to disappear any time soon, it’s clear that the competition to acquire larger, more mature firms is primarily among the professional acquirers. We expect RIAs looking to make a play on the larger end of the RIA spectrum to face stiff competition from a burgeoning group of professional firms with deep pockets and substantial resources devoted to sourcing and executing deals of significant size.