BANK-RIA Deals Gain Momentum
“Banks traditionally pay higher valuations, but [RIAS] should go into deals with eyes wide open,” investment bank founder David Devoe says.
Banks may “pay higher valuations, but [RIAS] should go into deals with eyes wide open,” Dave Devoe says.
BIG BANKS, MAJOR ACQUIRERS OF RIAS 15 YEARS ago, have re-entered the M&A space with a vengeance, snapping up 15% of deals so far this year, compared with just 3% for all of 2016.
That’s according to a new study by Devoe & Co., an investment bank that tracks RIA deals on a quarterly basis. “Banks have essentially quintupled” their market share in a matter of months, founder David Devoe says.
The new big money players are adding fuel to a sustained boom in
RIA dealmaking. Devoe & Co. has recorded 35 or more transactions for five straight quarters. Thus far,
2017 has produced 82 deals, a 15% increase over the 71 buyouts that took place during the same period last year, the study found.
The amount of assets under management exceeded $100 billion this year for the first time since the first quarter of 2015, according to the study.
Several years ago, Devoe predicted that the banks would go on a buying spree, as they came out of the recession. Back then, “They had their own issues rather than deploying capital toward M&A,” he says. “[But] a lot of those challenges were overcome a couple of years ago, [and] I anticipated they would enter the market sooner.”
With the banks back, RIAS’ proportional share of deals has dropped. While the RIAS accounted for nearly 40% of deals last year, this year so far this sector’s share is only 26%.
First Republic Bank, for example, has done a flurry of smaller deals, picking up four wirehouse breakaways so far this year, all with less than $1.5 billion AUM,
“Clearly First Republic continues to be very interested in this space,” Devoe says. After buying Luminous Capital and its $5.5 billion in assets in a headline-grabbing deal in 2012, the bank bought the $6.1 billion AUM multi-family office Constellation Wealth Advisors three years later in 2015. The banks’ entry into the space has disrupted a duet between RIAS and consolidators. “Over the last six or seven years, RIAS and consolidators have really gone head-to-head in acquiring the most firms,” Devoe says. “They generally traded off between 40% or 45% of the deals.”
RIAS interested in selling themselves to a bank should be wary, given that many banks are looking to sell their own products to the RIAS’ clientele. “Bank deals can be challenging,” Devoe cautions. “Overall, they have had pretty mixed results. That cross-sell strategy is really tough to implement.”
Many RIAS chafe at being told what to sell to their clients. And RIAS that have broken away from larger organizations for the benefits of independence may find it difficult to, once again, become part of a larger whole.
Devoe cited the example of Boston Private, which after buying a series of RIAS later sold off some of them off.
Trying to blend the two cultures “was not easy,” Devoe says. “Banks traditionally pay higher valuations, but [RIAS] should go into deals with eyes wide open.”