Wealth management dealmakers facing a much cooler market for transactions next year closed out 2023 with major acquisitions and recruiting moves spanning $9.3 billion in client assets.
In four deals and recruiting grabs displayed in the slideshow below, Emigrant Partners, Prime Capital Investment Advisors, Bluespring Wealth Partners and LPL Financial added large teams of financial advisors. The continued record-breaking consolidation in the industry this year showed flexibility in deal structure and new setups for firms across the country. Experts anticipate the high inflation and an expected recession triggered by more hikes in interest rates to keep it in check will combine to reduce the flow of deals in 2023. The outlook for M&A activity and valuations next year in investment bank and consulting firm DeVoe & Company’s annual survey came in at “the lowest in the survey’s history” earlier this month.
After making 11 acquisitions in about 12 months, wealth management and retirement consolidator Prime Capital is making the integration of those incoming firms its top priority in the new year, CEO Glenn Spencer said in an interview. Dealmakers are “taking a breath and slowing down a bit” at the end of a “choppy, challenging year,” for stocks and bonds, he said.
“Everyone’s cost of capital has gone up,” Spencer said. “Things have cooled off a little bit. I think things will continue to be less robust than they have been for the last couple of years, until the credit and interest rate environment reverts to where it was before or moves backwards in some way.”
Emigrant has invested on a minority, non-voting basis in 20 wealth management firms that collectively oversee $94 billion in client assets. The impact to earnings before interest, taxes, depreciation and amortization could prompt more registered investment advisors to take a closer look at deals with that structure to them next year, CEO Karl Heckenberg said.
“I think minority deals will swing back around for strong firms,” he said in an email. “The last two to three years, the excessively high valuations and adjustments to EBITDA have been so strong, even solid firms decided to monetize in some cases. That market is shifting, and taking in minority capital and staying independent ultimately nets sellers more money long term.”
DeVoe’s 2023 outlook survey of 112 RIA owners between June and October displayed some notable findings in the poll’s fifth year. At least 56% of the participants expect lower valuations for firms next year, versus just 8% who were anticipating them in 2022 at the same time a year ago. The percentage predicting deal volume will increase next year fell by 21 percentage points to 42%, while those forecasting a lower or “somewhat lower” amount jumped by 21 to 25%. Those numbers could shift with economic conditions, though, according to DeVoe’s report.
“Today’s M&A environment is evolving quickly. Although the pressure points for a slowdown in RIA M&A emerged months ago, the industry is only now experiencing an actual decline,” the report said. “Despite this growing mosaic of information, detailed predictions on the broader RIA M&A market are challenging. The sensitivity to and unpredictability of the national economic situation makes near-term forecasts challenging, at best.”
To see four significant M&A deals and recruiting moves closing out 2022 ahead of next year’s unpredictable economy, scroll down the slideshow. For a look at the largest recruiting and M&A transitions among independent brokerages in 2022, click here. And, to view a half dozen different ways that independent wealth managers are consolidating their channel, go to this link.