What We’re Reading on the RIA Industry

M&A Headlines

Industry Trends Transactions

Recent press in the RIA industry has continued to highlight the current M&A environment.  For this post, we’ll discuss some of the top acquisition headlines making news in the investment management industry which demonstrates that it’s not just consolidators like Focus driving acquisition activity, but Wall Street and PE firms are getting in on the action too.  With the number of RIAs growing as more firms are being created out of wirehouse defections than are being bought up by consolidators, we don’t expect acquisition activity in the RIA space or the headlines to slow down anytime soon.

Focus Financial Tries to Calm Nerves After Reporting Heightened Leverage

By Michael Thrasher, RIA Intel (recently launched by Institutional Investor)

Focus and its partner firms have announced/completed 32 transactions year-to-date in 2019, besting the 25 total deals made in 2018.  Focus Chief Operating Officer Rajini Kodialam suggested that acquisition targets for Focus are endless, saying there are 1,000 more potential partner firms in the market.  But Focus recently announced that it had to increase its debt load in order to pay down its revolver and finance new deals.  While some analysts have questioned Focus’ leverage, Focus CEO Rudy Adolf fought off these concerns saying, “Quite frankly, we firmly believe that we are the only game in town.  There is no one else that can do what we do.”

Almost one year ago today, we wrote:

Then there are all the recent headlines surrounding Focus Financial Group, a serial acquirer of wealth management firms.  Admittedly, we’ve contributed to some of this.  As a result, you probably didn’t even know about the Victory Capital (multi-boutique asset manager) IPO that happened earlier this year.  The market currently values Focus at nearly 5x revenue and Victory at well under 2x revenue even though VCTR is profitable and FOCS is not.  Arbitrage opportunity?

Interestingly, Focus’ share price is down almost 40% from a year ago, while Victory’s is up 75%.

Goldman Sachs Closes United Capital Deal and Matt Brinker, Joe Duran’s Wingman, Exits with Social Media Swan Song on Same Day

By Brooke Southall, RIA Biz

The United Capital deal made headlines in the RIA space with its $750 million price tag, but Goldman Sachs didn’t even issue a press release on the day it closed.  Questions of scalability of the United Capital model have started being raised especially with Matt Brinker’s exit.  United Capital has acquired firms with AUM under $300-million on average, which won’t move the needle much for Goldman.  Goldman plans to tuck United Capital into Ayco, its RIA which handles the ultra-wealthy and Fortune 500 companies they run.  While Goldman hasn’t ruled out the possibility of further RIA acquisitions, it seems that United Capital’s M&A activity may be de-emphasized under Goldman’s ownership.

Lightyear Sells Wealth Enhancement Group to TA Associates

By Jeff Benjamin, Investment News

Private-equity ownership of RIAs is becoming more common and with that comes more ownership turnover.  A majority stake in Minneapolis-based Wealth Enhancement Group, which made thirteen acquisitions over the last 6 years, will be sold by Lightyear Capital, a New York-based PE Group focusing on financial services, to TA Associates.  Lightyear, which has been a majority owner since June 2015, is likely rebalancing their portfolio which also includes Cerity Partners, which recently bought Prairie Group to create a $21 billion advisory firm.  Wealth Enhancement Group, with $11.8 billion in AUM, will continue to be a privately held independent firm under its existing leadership team, brand, and strategy.

Charles Schwab in Talks to Buy USAA Wealth-Management, Brokerage Units

By Dana Cimilluca, Telis Demos, and Justin Baer, The Wall Street Journal

In July, Schwab announced they are in negotiations to buy USAA’s brokerage and wealth management operations for $2 billion adding $100 billion of assets.  Schwab has been moving further in the wealth management space which has relatively stable fees due to the deeper relationship that financial advisors cultivate with their clients.  Online brokers such as Schwab have been working to diversify away from trading as fees continue to fall, and instead, are focusing on gathering and managing assets.

Shop Talk: A Case Study in RIA Acquisitions

By Institutional Real Estate, Inc. Podcast

Shannon Eusey and Matt Cooper of Beacon Pointe Advisors discuss M&A trends and Beacon Pointe’s acquisition process in this recent podcast.  Beacon Pointe made its first acquisition after 15 months of inactivity (after making over a dozen acquisitions within the last decade).  Beacon Pointe’s founder and president uses their recent acquisition of Heller Wealth Advisory as an example of their process in identifying acquisition targets and their typical due diligence process.  With a dedicated due diligence team, Beacon Pointe emphasizes that there are plenty of eligible firms to partner with today, so there is no need to continue negotiations with potential targets that aren’t a good fit.

In summary, consolidation and acquisition activity continue to be major trends in the investment management industry.  Wealth managers are receiving increased interest from PE investors due to the recurring revenue and growth potential that wealth management firms offer.  Additionally, Wall Street is more attentive to the space as the wealth management industry has distinguished itself as a relationship-based industry, more resistant to asset outflows and fee compression than asset managers.  It is clear that market interest in the wealth management industry is strong, and we expect to see the M&A headlines continue.