Mergers & Acquisitions Activity: 2019 Year-End Update

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2019 Deal Activity Shatters 2018 RecordDeal-making forces were fully in sync in 2019, pushing transaction activity to a level far beyond what the industry has ever experienced. The 144 announced mergers or acquisitions shattered last year’s record total of 90 (Figure 1). The 2019 total was up 60% over the year and exactly double the number of deals announced in 2017.

Many factors contributed to the frenzy of announcements: a strong stock market, abundant capital, high firm valuations, an increasing demand for scale, aging firm founders hungry for an exit strategy and multiple options for transacting partners.

Key Trends

• Transactions totaled 144—unprecedented for the advice industry

• Announced deals were up 60% vs. 2018

• AUM of targeted firms increased to a record $156 billion

• Acquirers of all types are contributing to the surge, including more first-time RIA buyers

• Mercer Advisors was most active, with 11 deal announcements

Figure 1Total Transaction Announcements, 2011–2019

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2019

Average Transactions2011–2014: 42

Average Transactions2015–2018: 82

Note: For a detailed explanation of the methodology leveraged to create this update, please refer to Page 6.

Mergers & Acquisitions Activity: 2019 Year-End Update January 2020

Deals were announced at a fairly consistent pace throughout 2019. The second quarter of the year, however, was especially hot. The 41 announced transactions for the quarter were at a level that was typical of annual totals just five to 10 years ago.

Mergers & Acquisitions Activity: 2019 Year-End Update

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But more than just another record year, 2019 may represent a new level of M&A intensity. This is the second significant step-up for the industry in the past four years. The first occurred with a 93% annual jump in deals in 2015. Prior to this increase, yearly deals hovered around a fairly tight range, averaging 42 transactions per year during the 2011–2014 period. From 2015 to 2018, annual deal totals fluctuated around a much higher range, averaging 82 transactions per year. Has 2019 marked the onset of an even higher plateau?

Partnering Options Continue to Expand

Buyers of all types are facilitating the surge in deals. In 2019, four of the five acquirer groups significantly increased activity, while the fifth group, banks and trust companies, held steady relative to 2018 (Figure 2).

Figure 2Number of Transactions by Acquirer Type, 2018 and 2019

In recent years, RIAs have become increasingly confident in initiating deals with other RIAs, and 2019 was no exception. No group had a greater increase in announced transactions than the RIA One-Off group. These first-time or ad hoc RIA buyers initiated 20 more deals than a year ago, nearly doubling their 2018 total in 2019. Total RIA-led deals, including RIA Multi-Dealers, dominated activity for the year, accounting for two-thirds of all mergers or acquisitions (Figure 3).

93%

60%

Two Momentous Activity Surges over the Last Decade

increase in transaction announcements

(2014–2015)

increase in transaction announcements

(2018–2019)

Note: “Other” is any other transacting party, including broker-dealers, accounting firms, platform providers and direct private equity investors.

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Bank/Trust RIA One-O� RIA Multi-Dealer InvestorMulti-Dealer

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Mergers & Acquisitions Activity: 2019 Year-End Update

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Rapid growth in deals initiated by “Other” firms demonstrated the expanding breadth of different acquirer types. Key players within the Other group were holding companies, private equity investors and platform providers. Private equity firms announced four direct investments in firms during 2019 in addition to 24 deals initiated by firms with private equity backing.

Platform providers, oriented toward providing support services for advisory firms, began to strike closer relationships with their affiliates in 2019 in the form of direct investments. These service providers, including Integrated Partners, Private Advisor Group and Sanctuary Wealth Partners, announced five deals in 2019.

Repeat Buyers Outweigh Record Number of First-Timers

Across all acquirer types, a growing number of first-time buyers are contributing to the record M&A activity. In 2019, 54 firms initiated their first deal, equal to the total firms (sole or repeat buyers) that initiated deals in 2018. Further, four of the 2019 first-timers (Bluespring Wealth Partners, Crestwood Advisors Group, Emigrant Bank and Integrated Partners) jumped into the market with gusto, completing multiple deals during the year.

Figure 3Share of Transactions by Acquirer Type, 2019

Bank/Trust RIA One-O� RIA Multi-Dealer Investor Multi-Dealer Other

8%

30%

36%

10%

16%

Mergers & Acquisitions Activity: 2019 Year-End Update

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Repeat buyers are still initiating the majority of transactions, however, accounting for 59% of deal announcements in 2019. Seven of these multi-dealer acquirers initiated four or more deals during the year (Figure 4). Together these buyers accounted for 26% of transactions. Of these leading acquirers, all except Hightower Advisors are classed as RIA multi-dealers.

Mercer Advisors topped the field with 11 deal announcements. Across 20 years of FA Insight M&A data, no firm has ever been as active in a given year. While not among this top seven in terms of direct investments, Focus Financial also warrants mention as a leading 2019 contributor. In terms of both direct deals and sub-acquisitions of its affiliates, the firm influenced 18 deals during the year.

Total AUM of Target Firms Reaches Record $156 Billion

Consistent with a record level of deal announcements, the total AUM of firms targeted for deals also reached a record high in 2019. At $156 billion, assets were up 66% over 2018 and 23% higher than the previous record of $127 billion, set in 2015 (Figure 5).

2019 Transactions

Firm Total Largest Transaction by AUM

Mercer Advisors, Inc. 11 $477M AUM—Jackson Financial Management announced June 19

Wealth Enhancement Group

6 $1.4B AUM—RCL Advisors, LLC announced Oct. 31

MAI Capital Mgt. 5 $640M AUM—J.M. Hartwell LP announced Dec. 31

Mariner Wealth Advisors LLC

5 $1.4B AUM—Singer Xenos Schechter Sosler announced April 17

CAPTRUST 4 $3.4B AUM—South Texas Money Management announced August 22

EP Wealth Advisors, Inc. 4 $485M AUM—Conlon Dart Wealth Management announced May 8

Hightower Advisors LLC 4 $3.6B AUM—Lourd Murray Capital LLC announced April 29

Figure 4Most Active Acquirers in 2019

Mergers & Acquisitions Activity: 2019 Year-End Update

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More deals, and not bigger targets, are driving the AUM increase. Median deal size, in terms of the assets of targeted firms, was $385 million in 2019. This was down 7% relative to 2018 but still in the range of the typical deal size over the last five years. Increasingly, the sweet spot for targeted firms in terms of size lies between $100 million and $500 million in assets (Figure 6). The share of firms in this range, now representing over half of all announced deals at 52%, has increased for three consecutive years now. One possible explanation for the growing interest in firms of this size: These are firms large enough to have significant value but not so large that there are natural options for an internal successor.

Figure 5AUM Related to Announced Transactions, 2015–2019

Figure 6Transaction Share by AUM Range, 2019

Looking Ahead—Established Infrastructure Will Sustain Future M&A Activity

The past year most certainly marks the beginning of a new phase of heightened activity. Whether 2020 continues at the same torrid pace experienced this year remains to be seen. Perhaps the greatest threats to future M&A growth are a pullback in security markets that could threaten firm valuations or rising interest rates that would restrict the availability of deal financing.

However, the conditions are favorable for continued growth in activity, considering the many motivating factors for transacting. These include, for example, a desire for scale economies and firm founders’ needs for succession solutions. But perhaps most significant is that an established M&A infrastructure is now in place that didn’t exist just a few years ago. This infrastructure, comprising matchmaking services, M&A consultants, specialty lenders and a varied assortment of established deal partners, will assuredly facilitate transactions for years to come.

5.6%6.9% 32.6% 19.4% 15.3% 20.1%

>$5B<$100M $100M–$300M $300M–$500M $500M–$1B $1B–$5B

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This material is designed for a financial professional audience, primarily Registered Investment Advisors.

This brochure is published by TD Ameritrade Institutional for informational purposes only and is intended to provide a general overview about the topics covered and to help you identify opportunities in your practice and important issues you may wish to consider in developing a strategy. This should not be construed as legal, tax, compliance or professional advice. While TD Ameritrade Institutional hopes that you find this information educational and thought-provoking, you need to determine whether the information is appropriate and applicable to you and your firm.

TD Ameritrade Institutional disclaims any loss or liability that is incurred as a consequence, directly or indirectly, from the use or application of this publication. You should consult with attorneys or compliance experts that understand your particular circumstances before utilizing any of the ideas presented here in your practice.

FA Insight is a product of TD Ameritrade Institutional, Division of TD Ameritrade, Inc., member FINRA/SIPC. FA Insight, TD Ameritrade Institutional and TD Ameritrade Inc. are trademarks owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Banks. © 2020 TD Ameritrade.

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MethodologySources

A variety of sources were leveraged to produce this report. Transaction data are gathered from various trade articles, press releases and other secondary research sources, including the Worldwide Mergers & Acquisitions database compiled by Securities Data Company. All publicly announced transactions involving the acquisition or merger of an independent advisory firm are reviewed for inclusion.

Firm Types

Coverage is limited to any U.S.-based RIA or independent trust company which has either been acquired or merged into another firm. As a result, internal transitions of ownership as well as individuals or teams joining a firm are not included.

In addition, the firm must directly serve households or individual clients and manage at least $50 million in AUM or generate at least $500,000 in annual revenue. Further, coverage is limited to firms under $20 billion in AUM. Also excluded are transactions targeting independent broker-dealers, given the different business models, market orientation and operating characteristics of these firms.

Deal Restrictions

Transactions must involve an exchange of equity with an outside party representing a 10% or more share of the firm’s value.

Database Maintenance

To produce historical trends, new data are added to FA Insight’s proprietary database that covers the specifics of major deals announced since 2000. Aggregate results for 2019 are preliminary and will likely be revised upward as additional information becomes available.

Important Buyer Type Definitions

Bank/Trust. Includes any bank, trust company, credit union or savings institution.

RIA One-Off. Denotes an independent RIA firm initiating a one-time deal.

RIA Multi-Dealer. Relates to RIAs that originate as traditional advisory firms and then adopt routine transactions as part of a deliberate growth strategy, initiating at least three deals in a five-year span.

Investor Multi-Dealer. Includes typically private equity–backed firms, often referred to as aggregators or consolidators, formed with the primary purpose of making multiple accretive transactions.

Other. Denotes any other transacting party including broker-dealers, accounting firms or direct private equity investors.