ECHELON, a US investment firm that specializes on wealth sector M&A deals, said in its latest quarterly study that there were 43 consummated deals done in the third quarter, a drop from 48 in Q2 but still on course for a record 12 months.

M&A is being driven by a desire by some RIA owners who are nearing retirement to sell up, as well as by how regulatory costs are pressuring businesses to join up and reap economies of scale.

While there are some risks ahead, ECHELON pointed to a continued vibrant M&A market in this space. “A potential headwind to deal making is the Federal Reserve’s tightening policy as buyers are faced with rising financing costs. However, late cycle consolidation can be expected to continue as RIAs remain attractive assets for buyers and sellers seek liquidity,” it said in its report.

“In a continuing theme, heightened deal activity in 2018 has coincided with a revitalized interest from consolidators and private equity buyers, as these firms increasingly are seeking and finding established businesses that fit their investment criteria,” it continued.

Deal sizes increase
The third quarter of 2018 brought annual average transaction size of over $1.5 billion, a 55 per cent increase over 2017’s average deal size, the report said.

Consolidator firms – those building bigger organizations via M&A – were the main causes of deals, accounting for 53 per cent of acquisitions in the third quarter, or 23 deals.