Uncategorised
RIA M&A Deals Decline, Rebound Seen For 2010
Merger and acquisition deals for registered investment advisors
dropped nearly 20 per cent last year, from 88 deals in 2008
to 71 in 2009, according to data from
Charles Schwab Advisor Services.
But that number is expected to rebound in 2010, said David DeVoe, managing director of strategic business development at Schwab.
The 2009 downturn was “directly or indirectly related to the economic and stock market decline of the past 18 months,” Mr DeVoe said. “Advisors were distracted taking care of clients and valuations decreased as profit margins and cash flow were put under pressure, growth rates declined and risks increased.”
But 2010 “is likely to be stronger,” according to Mr DeVoe.
“A lot of elements have improved, beginning with the recovery in the stock market,” he said. “Cash flows and profit margins are increasing and valuations are starting to creep back up.”
What’s more, private equity investors are coming off the sidelines to make significant investments in consolidators, or “roll-up” firms such as Focus Financial, United Capital Financial Partners and Hightower Securities LLC, Mr DeVoe noted.
In fact, he sees the percentage of deals done by holding companies increasing in the future. Last year holding companies did 30 per cent of deals, according to Schwab’s statistics, while RIAs accounted for 56 per cent of the transactions.
That figure, up from 49 per cent in 2008, shows a “growing sophistication” by RIAs about the strategic uses of mergers and acquisitions, Mr DeVoe said, and this was underscored by the large number of management buy-outs, which accounted for 15 per cent of the deals.
Regional banks showed the steepest decline in activity, accounting for only 2 per cent of deals last year, compared to 9 per cent in 2008.
Nor does Mr DeVoe expect that anemic number to improve much this year, citing “cultural friction” between banks and advisory firms, and an inability to achieve cross-selling goals.
Last year’s M&A deals represented $103 billion in assets under management, compared to $137 billion from deals in 2008.
Average deal size assets remained the same however, at around $1.5 billion.
