FWR attended DeVoe & Co's recent annual conference in Chicago to hear about trends around mergers and acquisitions in the wealth industry, and how this is being affected by the challenging economic environment.
The Federal Reserve’s 0.75 per cent interest rate hike and the attendant gloomy reaction from Wall Street should put the optimism of the registered investment advisor M&A market to its severest test yet.
To date, however, despite what M&A guru David DeVoe described as a “very challenging macro environment” for mergers and acquisitions, RIA transactions remain on pace to set yet another record this year.
Concerns about high interest rates, a slumping stock market, inflation and a shaky global economy have so far been shrugged off by buyers and sellers of advisory firms, DeVoe said.
“Despite a perfect storm of factors that have historically slowed M&A, RIAs keep selling in record numbers,” DeVoe told over 200 industry executives in Chicago at DeVoe & Co’s annual M&A conference.
Recession fears spur sales
In fact, the threat of an imminent recession may be spurring the “rush of activity” in RIA transactions the last few weeks, according to Dave Barton, head of M&A for Mercer Advisors, the industry’s biggest buyer.
Sellers are “seeing a recession coming” and have decided to go to market now “before the recession hits,” Barton said, to “take advantage of high multiples today. No one knows what valuations will be after that.”
Mercer is still willing to pay high multiples but is being more selective and focusing on quality firms, Barton said. Deals now are also requiring more due diligence from both buyer and seller and taking longer to complete, he added.
“You can’t just do Zoom calls exclusively anymore after Covid,”
Barton said. “Everyone is doing face-to-face meetings and the
timeline [for completing transactions] has been extended.”