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Focus, HighTower and Steward Partners Dominate M&A

By Murray Coleman May 11, 2017

After a string of record back-to-back years in mergers and acquisitions activity by independent RIAs, one group of M&A competitors is looking particularly trigger happy in 2017.

So-called consolidators – who specialize in buying rivals in small bites or swallowing them whole – are starting to “flex their muscles” as dealmakers, says San Francisco-based investment banker David DeVoe.

“They’ve always been major players in the independent RIA marketplace,” he says. “But in this most recent first quarter, consolidators really dominated the industry’s M&A activity.”

Earlier this week, DeVoe reported deal-making set fresh quarterly volume records with 44 new transactions. That represented a 29% spurt from the same time a year earlier. In particular, firms he classifies as consolidators represented the biggest single group of buyers. But this year’s first quarter marked the only three-month period DeVoe has tracked in recent years where the category has clearly asserted its leadership.

“It’s been more than three years since consolidators acquired a majority of the sellers in a given quarter,” DeVoe says.

His numbers show that three such firms – Focus Financial Partners, HighTower and Steward Partners – each cut five deals in Q1. Meanwhile, Snowden Lane Partners and Mercer Advisors closed two or more. Other active M&A participants in the quarter listed by DeVoe were Bronfman E.L. Rothschild and CapTrust.

A decade ago, 32 different consolidators were active in the market, according to DeVoe. Now, he figures about half as many exist across the U.S. RIA landscape. For example, HighTower struck a deal in April to acquire Houston-based aggregator Wealth Trust with more than $6 billion in client assets.

“As this market consolidates, we’re seeing the lines blur in terms of defining what actually constitutes a true consolidator,” DeVoe says. He predicts that besides bigger rollups getting into the business, “mega” RIAs are increasingly expanding into aggregating and outside consulting roles.

In his view, wealth firms such as Edelman Financial Services, Carson Group, Savant Capital, Wealth Enhancement Group and Beacon Pointe Advisors are close to – or already functioning – in many ways like consolidators.

Matt Brinker

But how much of the RIA market is moving towards rollup status is a point of contention among market watchers.

“While a lot of these deals are being categorized as coming from consolidators, we feel like this is too general of a way to slice and dice M&A players – it’s just too general of a term,” says Matt Brinker, head of national partner development at United Capital in Newport Beach, Calif.

The indie RIA, which manages $18 billion, is often characterized as a consolidator. Brinker agrees United Capital might be placed in “a very broad sense” as competing in such a market. At the same time, he believes the firm falls into a “strategic acquirer” subgroup.

This is different, in his view, than those solely focused on M&A to spur growth such as Focus Financial and AMG Wealth Partners.

“At United Capital we see M&A as a complementary long-term growth strategy to our core financial planning business,” Brinker says.

In Q1, United Capital didn’t complete any deals. Later this year, though, Brinker expects to ink at least a few more transactions that should add between $2 billion to $3 billion to the firm’s assets under management.

“We do see M&A as a fantastic way to add like-minded advisors and grow our client base,” he says. “But acquisitions are going to remain only part of our strategy – it’s more about white labeling our growing service platform as another way to expand our horizons.”

Rob Mooney, chief executive of Snowden Lane, also expects his “strategic” rollup to keep active in M&A this year. The New York-based RIA, which manages about $1.5 billion, cut three deals in Q1.

At the end of April the firm also scooped up a team of former Merrill Lynch advisors. Counting that deal, Mooney says almost $550 million in new assets have already flowed into the wealth manager’s coffers this year through tuck-ins and acquisitions.

Most of Snowden Lane’s new recruits are coming from big banks and other major brokerages, he notes. “The wirehouses are focusing more on productivity and less on headcount growth,” Mooney says. “That’s going to help to level the playing field even more for boutique M&A players like us.”

Snowden Lane has several deals in its acquisitions pipeline for the second half of 2017, he adds. But like others tackling M&A, Mooney emphasizes a need to “grow smartly” and not overextend. “It takes time to integrate new teams and make sure fresh recruits are properly acclimated to our culture,” he says. “So after a fairly active start to the year, we expect to take a pause later this year to catch our breath.”