A Promising Rebound in Deal Activity for Registered Investment Advisors
According to a forthcoming report from DeVoe & Co., the landscape of registered investment advisors (RIAs) is showing signs of a revival in deal activity after a stagnant year. DeVoe & Co., an investment bank and advisor consultancy that closely monitors mergers and acquisitions, has identified 55 RIA transactions in the third quarter as of September 13. This puts the industry on track to experience its first year-over-year increase in quarterly deal volume since 2022.
While the overall increase may seem modest, with only two more transactions compared to the same period last year, the significance lies in the context of the previous slowdown. Over the past year, RIA mergers and acquisitions had decelerated due to factors such as high interest rates, market volatility, and economic uncertainty. In fact, deal activity in this sector had experienced a 15% decline from the third quarter of 2022 to the second quarter of this year.
David DeVoe, founder and CEO of the company, remarks, "Given the steady slowdown in M&A activity over the last several quarters, this is a notable uptick."
Advisors surveyed by DeVoe towards the end of last year had predicted that a combination of macroeconomic factors would impede deal volume in the RIA sector. Their predictions seem to have held true, as the fourth quarter's sluggish start signaled a cooling period.
It is encouraging to see that the RIA industry is beginning to regain momentum in deal activity despite the challenges it has faced recently. This positive trend bodes well for the industry's future prospects.
Record-Breaking Year for Deals in 2022
Despite a subdued deal environment towards the end of 2022, the year overall saw a blistering pace of acquisitions. According to DeVoe, there were a total of 264 deals, surpassing the previous record of 241 set the year before.
Projections for 2023
Looking ahead, DeVoe predicts that 2023 will not set a new record for deal volume, which would be the first time in at least a decade. However, they anticipate the final number to be only slightly lower than what was achieved in 2022.
Key Factors Driving Merger Activity
While macroeconomic factors play a role, there are specific conditions within the RIA sector that continue to fuel merger activity. One significant factor is the aging leadership ranks at many firms. Additionally, there is an increasing recognition that larger firms with greater resources are better equipped to meet clients' demand for a more expansive service model.
Outlook for the Future
Despite potential short-term volatility, DeVoe expects RIA M&A activity to continue on an upward trajectory in the midterm and long term. The aging of RIA founders and a growing interest in scale are anticipated to drive increased M&A activity in the coming years.
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