ECHELON's RIA M&A Deal Report™
File info: application/pdf · 40 pages · 3.54MB
ECHELON's RIA M&A Deal Report™
For reference, private equity capital backs some of the most ... 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029. A ... of Massey Quick Simon & Co.
Extracted Text
THE 2019 ECHELON RIA M&A DEAL REPORT
INVESTMENT BANKERS MANAGEMENT CONSULTANTS VALUATION EXPERTS to the Wealth and Investment Management Industries
Table of Contents
Executive Summary Deals and Dealmakers of the Year The Drivers of Increased Industry Deal Activity Section 1. Wealth Management Deal Activity
Exhibit 1: M&A Activity Reaches Record High for the Seventh Straight Year Exhibit 2: $1 BN+ Transactions Surge Again Exhibit 3: Strategics Lose Ground, Maintain Title of Most Active Dealmaking
Category Exhibit 4: Total Deal AUM Hits Record High for Fifth Year in a Row Exhibit 5: Average AUM per Deal Surpasses $1 BN Again, Reaching Record High Exhibit 6: Deals Under $100 MM Expected to Dominate Deal Volume Exhibit 7: $BN Deals Dominate Assets Transacted Exhibit 8: The 25 Top $1 BN+ in AUM Transactions from 2018 and 2019 Exhibit 9: Distribution of Industry Assets ($ BN) Exhibit 10: Advisor Population and Assets per Advisor ($ MM) Exhibit 11: Advisors Are Concentrated at Small to Mid-Sized Firms Exhibit 12: Smaller RIAs Continue Grow at the Highest Rates Exhibit 13: 89 $1BN+ AUM Transactions in 2018 & 2019 Exhibit 14: 2019 State-Level M&A Activity & Growth Exhibit 15: U.S. Regional Growth in Number of Advisors
Section 2. Breakaway Deal Activity
Exhibit 16: Expiration of Forgivable Loan Contracts Continues to Drive Breakaway Activity
Exhibit 17: Largest AUM Gained by The Firm Team Joins ($ MM) Exhibit 18: Largest AUM Lost to The Firm Team Departs ($ MM) Exhibit 19: Reported Breakaway Activity Hits Record Levels
Page 4 Page 5 Page 7 Page 9 Page 9 Page 10
Page 11
Page 12 Page 12 Page 13 Page 13 Page 14 Page 15 Page 16 Page 17 Page 17 Page 18 Page 19 Page 19 Page 20
Page 21
Page 21 Page 22 Page 23
Table of Contents
Exhibit 20: Breakaways to RIAs Also Hit Record in 2019 Exhibit 21: Breakaway AUM Has Grown Steadily Since 2013 Exhibit 22: Volume of $1 BN+ AUM Breakaways Remains Steady Exhibit 23: Breakaways with AUM Over $1 BN in 2018 and 2019
Section 3. WealthTECH Deal Activity
Exhibit 24: Dramatic Ascension of FinTech Fuels Evolution of WealthTECH Exhibit 25: WealthTECH Market Map Exhibit 26: U.S. FinTech Investment Declines From 2018 Record Exhibit 27: 2018 FinTech Deal Activity Hits an All-time High Exhibit 28: M&A Transactions in WealthTECH Hits Record High in 2018 Exhibit 29: The Race to a WealthTECH Product Suite Exhibit 30: WealthTECH Transaction Breakdown 2019
Frequently Used Terms About ECHELON Partners ECHELON Leadership Sample Transactions and Advisory Assignments The Deals & Dealmakers Summit 2020
Page 23 Page 24 Page 25 Page 26 Page 27 Page 27 Page 28 Page 29 Page 30 Page 31 Page 32 Page 33 Page 34 Page 35 Page 36 Page 37 Page 39
ECHELON PARTNERS RIA M&A DEAL REPORT TM
Executive Summary
Dear Dealmakers,
We know how much you love high-powered research and analysis on mergers, acquisitions, capital raising, and valuation. With that in mind, we have been working diligently to assemble valuable deal intelligence and resources in this report just for you.
As part of this introduction, we would like to highlight several of the key takeaways and trends that we found most impactful in our analysis of dealmaking in 2019 as well as some notes for what to expect in the future.
I. Wealth Management Deal Activity: 2019 was the seventh straight record-setting year in terms of number of deals completed, with 203 transactions recorded in ECHELON's M&A Deal Tracker. This represents a 12.2% increase over 2018 and a 15.4% annual growth rate over the past five years. Activity was especially high in the second and fourth quarters. The year's record total demonstrates that, despite heightened valuations and market volatility, structural forces in the market continue to drive deals to the finish line. Firms increasingly view the benefits of consolidation versus a path of independence. Larger firms benefit from cost savings, have improved resources to invest in the latest technology, and have an easier time recruiting talent. While deal volume was dominated by strategic buyers such as Focus Financial and Mercer Advisors, the largest deals were carried out by private equity investors and large financial institutions as measured by AUM transacted.
II. Breakaway Deal Activity: Breakaway activity increased for the second straight year, setting a new record for the number of annual breakaway deals. There were 655 breakaways recorded in 2019, a 21.7% increase over 2018 and a 40% increase over 2015, the previous record year. The heightened breakaway activity has been attributed to several key industry factors, including the expiration of forgivable loans issued to advisors during the 2008 financial crisis and the dissipation of fears related to several wirehouses removing themselves from the longstanding broker protocol within the past two years. The biggest winners in terms of assets gains from breakaways included Wells Fargo Advisors Financial Network ($19.8 BN) and Raymond James Financial Services ($18.6 BN). Conversely, the teams that lost the most assets from breakaways included Wells Fargo Clearing Services ($70.3 BN) and Morgan Stanley ($24.5 BN).
III. WealthTECH Deal Activity: Deal and capital raising trends present the following key developments: a race to build the most complete WealthTECH product suite by the bestcapitalized strategics; an increase in partnership and white-label rollouts versus a buy and/or build strategy; and a continuance in the advisor community's desire to improve client experience via technology. Deals and partnerships between traditional wealth management platforms (and other financial institutions) and pure play WealthTECH businesses continued to drive increased technological adoption rates across the industry, improving the end-consumers experience. There is also healthy capital raising activity for startups, who are generating interest from a variety of investors, including venture capital, growth equity funds, and strategic investors. The most prominent deals of the year involved strategic investors including BlackRock, Broadridge Financial Solutions, Invesco, and Envestnet, who boosted their WealthTECH service offerings via M&A.
4
ECHELON PARTNERS RIA M&A DEAL REPORT TM
Deals and Dealmakers of the Year
Here we outline the most prominent deals of the year. This year's deals signal the following trends: consolidation among the largest firms, heightened private equity interest in the independent broker dealer industry, a race to build a robust WealthTECH product suite, and the aggregation of retirement planning assets.
Who: Charles Schwab acquires TD Ameritrade What: Business lines acquired include a brokerage platform and custodian
business that services over $1.3 TRN in assets When: November 2019 How: Estimated transaction value of $26 BN and 12-15x EBITDA multiple Why: Schwab's mantra for the upcoming year at their annual IMPACT
conference was "All in," and the announcement of a potential merger with TD Ameritrade is a testament to the slogan (as well as a reaction to increased fee pressure in the brokerage business). Some industry observers are worried that the consolidation of two of the biggest players could flag antitrust issues. The new entity will hold over a third of the RIA custody market but only 11% of total client assets in the retail financial services market. There is expected to be over $2 BN in cost savings, and Schwab's stock has reacted positively to the announcement.
Who: Warburg Pincus acquires Kestra Financial What: Business lines acquired include an independent broker dealer platform
that serves over 2,000 advisors and $92 BN AUA When: February 2019 How: Estimated transaction value of $600-$800 MM and 9-12x EBITDA
multiple Why: Warburg's investments in the sector include The Mutual Fund Store
(exited), Financial Engines (exited), and Facet Wealth (current). The private equity behemoth is a well-versed buyer and has the capital and resources for Kestra to conduct M&A in the IBD and RIA market (via its new venture Bluespring), improve its technology platform, and further develop its investment management division.
Who: Reverence Capital Partners acquires Advisor Group What: Business lines acquired include an independent broker dealer platform
that serves over 7,000 advisors and $268 BN AUA When: August 2019 How: Estimated transaction value of $2.3 BN and 12-15x EBITDA multiple Why: The transaction is part of a growing theme in private equity
consolidating the broker dealer landscape. Although Advisor Group has signaled that M&A is not its primary strategy, we expect the company and its subsidiaries (FSC Securities, Royal Alliance, SagePoint Financial, and Woodbury Financial) to be more acquisitive with the fresh infusion of capital. In fact, Advisor Group announced a prospective merger with Ladenburg Thalmann only months later, which would create a mega platform serving approximately 11,500 advisors and boost assets to more than $450 BN.
5
ECHELON PARTNERS RIA M&A DEAL REPORT TM
Deals and Dealmakers of the Year
Here we outline the most prominent deals of the year. This year's deals signal the following trends: consolidation among the largest firms, heightened private equity interest in the independent broker dealer industry, a race to build a robust WealthTECH product suite, and the aggregation of retirement planning assets.
Who: Goldman Sachs acquires United Capital What: Business lines acquired include a $25 BN AUM RIA focused on the
mass affluent market as well as the TAMP FinLife, which boasts ~$23 BN in contracted assets When: May 2019 How: Estimated transaction value of $750 MM and 18-22x EBITDA multiple Why: The United Capital platform is one of the industry's most successful and renowned platforms for providing financial advice to the mass affluent market (net worth $1 MM to $15 MM), an area of the market that Goldman had not historically focused its wealth management services on. The deal signifies a change in strategy for the bank and provides a platform for cross-selling other products such as personal lending and its growing mortgage presence.
Retirement & Trust Assets
Who: Principal Financial acquires assets from Wells Fargo What: Business lines acquired include Wells Fargo's defined contribution,
defined benefit, executive deferred compensation, employee stock ownership plans, institutional trust and custody, and institutional asset advisory businesses When: April 2019 How: Estimated transaction value of $1.2 BN and 8-12x EBITDA multiple Why: Through this acquisition, Principal will double the size of its U.S. retirement business by the number of total recordkeeping assets. In addition to increased scale, Principal will gain a strong foothold with midsized employers as more than two-thirds of Wells Fargo's institutional retirement assets are in plans ranging from $10 MM to $1 BN. Fee compression and increased regulatory insight to how retirement assets are managed were likely drivers of the deal.
Who: Envestnet acquires TXN and MoneyGuidePro What: Business lines acquired include a web application for consumer spending
analytics, competitive intelligence and surveys (TXN), and a financial planning software company (MoneyGuidePro) When: TXN August 2019, MoneyGuidePro March 2019 How: Estimated transaction value of $90 MM for TXN and $500 MN for MoneyGuidePro Why: The race to complete the most diversified and complete WealthTECH product suite is heating up. Envestnet is among the largest WealthTECH providers in the industry and has built a roster of technology solutions spanning modeling and execution, CRM, accounting and reporting, operations and compliance, and decision support. Via its acquisition of TXN, the Envestnet platform improves its understanding of client spending patterns, while the MoneyGuidePro deal adds asset allocation, goal performance, and financial statement analysis to its existing software-based financial planning capabilities.
6
ECHELON PARTNERS RIA M&A DEAL REPORT TM
The Drivers of Increased Industry Deal Activity
Based on our investment banking and consulting advisory assignments, ECHELON Partners has identified the following drivers for the recent increase in deal activity: I. Increased Interest from Well-Capitalized Buyers: Aggregators, consolidators, emerging
independent RIA leaders, large financial services firms, and private equity capital have fueled the increase in deal volume and AUM transacted. Specifically, within private equity there is a new appreciation for the recurring revenue associated with the wealth management industry. ECHELON has observed an increase in both direct and indirect private equity deals, with deal volume increasing from 34 in 2017 to over 80 in 2019 (~235% increase). For reference, private equity capital backs some of the most aggressive consolidators and strategics (Mercer Capital, Wealth Enhancement Group, and Allworth). Furthermore, there has been an increase in PE-to-PE deals, a sign of improved liquidity for the sector. II. Increased Availability of Financing: For decades, a general lack of deal financing plagued the wealth management industry as traditional lenders overlooked the industry's attractive recurring revenue streams and balked at the risk associated with the industry's lack of assets to foreclose on in the event of a default. Recently, more savvy, cash flow-appreciating lenders have entered the market and helped fuel the ability of smaller, less experienced buyers to execute transactions, allowing them to grow, recognize operational efficiencies, attract talent, and realize other benefits from increased scale. The table below presents the evolution of debt financing for RIAs. Participants range from local regional banks to, more recently, platforms dedicated to helping RIAs grow via debt capital and other sources.
III. Increased Number of Peer-to-Peer Deals: Sellers can sometimes turn to someone with whom they already have a trusting relationship (either internally or externally). In such cases, due diligence progresses faster and with fewer complications, resulting in a greater probability of the deal getting done and staying together.
IV. Market Cycle Timing: Given that it usually takes at least a year to consummate a deal, trying to time the market with the sale of your company can prove extremely difficult. Still, advisors are attempting to factor in market cycles when timing their exit strategies. With the U.S. economy in its 11th year of an expansion, the longest on record, we expect to see continued interest in the M&A process and upward pressure on deal activity.
7
ECHELON PARTNERS RIA M&A DEAL REPORT TM
The Drivers of Increased Industry Deal Activity
Based on our investment banking and consulting advisory assignments, ECHELON Partners has identified the following drivers for the recent increase in deal activity: V. The Tipping Point for Demographics: The demographics of wealth management
business owners are reaching a tipping point and forcing M&A-related succession planning. VI. Greater Motivation to Break Away: An aging advisor demographic, the desire for liquidity, a possible market downturn, and the wide availability of financing programs are all factors that helped drive this year's record breakaway activity. Additionally, the ongoing expiration of forgivable loans has continued to spur breakaways.
8
ECHELON PARTNERS RIA M&A DEAL REPORT TM
Section 1. Wealth Management Deal Activity
In 2019, M&A activity in the wealth management industry reached a new
Reported M&A deal volume reaches its seventh straight record-setting year.
record high � the seventh straight record-setting year. The year's 203 transactions, or roughly 17 per month, represent a 12.2% increase over last year's record level and a 15.5% compound annual growth rate (CAGR) since the business cycle trough in 2009. The year's 12.2% YOY growth rate also indicates an acceleration in dealmaking that took place in 2018, which saw only a 7.7% annual increase. Still, as Exhibit 1 shows, growth in the past six years has been relatively steady, and years of expansion have seen lower annual growth than years prior to 2013. This current trend would suggest
approximately 210 deals to close in 2020, or approximately 18 per month.
Exhibit 1:
M&A Activity Reaches Record High for the Seventh Straight Year
72.5%
-4.0% -27.5%
41.7% 11.8%
-21.1%
50.0%
26.3%
21.7%
10.0%
10.4%
181
168
138
7.7%
125
203 210
3.4% 12.2%
90
99
69
50
48
68
76
60
Wealth Management Transactions YOY % Change
2007 2008 2009 2010 2011 2012 2013 2014
Number of Transactions
Note: Total AUM excludes deals with AUM $100 MM or lower Sources: Company Reports, SEC IARD, ECHELON Partners Analysis
2015 2016 2017 YOY % Change
2018
2019 2020E
A Note on Deal Reporting in the Wealth and Investment Management Industries
It should be noted that tracking deal activity in the wealth management industry is still largely an imprecise science for the following reasons:
1. Smaller Deals: Most deals involving firms with less than $100 MM in AUM go unreported and therefore are very difficult to identify.
2. Internal Deals: Deals inside a firm between partners also often go unreported and would likely need to involve a material amount of equity changing hands to have a chance of being officially recognized.
3. Hybrid Deals: Deals that are part recruiting and part equity sharing fall into this category and present an issue as to whether they should be included. They too are often not reported.
4. Breakaway Deals: With the definition of "breakaway" broadening to include more than only those instances in which an advisor is leaving a wirehouse, there is a blurring of what constitutes a breakaway and what doesn't. Also at play is how much equity has to change hands for a breakaway to become more of an M&A transaction.
5. Data Definition Rules: The general lack of clear deal categorization and data category definitions creates an issue regarding what truly constitutes a deal.
6. Data Consistency Over Time: As data series contents change over time, it is difficult to go back to prior years and add or delete deals that don't fit enhanced data definitions.
As a result of the above, we believe reported deal activity is likely one-third to one-fourth of the true deal activity. Therefore we would encourage you to remain cognizant of these facts while you consider the above information.
9
ECHELON PARTNERS RIA M&A DEAL REPORT TM
2019 saw a 33% increase in the number of M&A deals and breakaway transactions involving $1 BN+ wealth managers, breaking a trend of relatively little growth that the industry had experienced since 2015's massive increase in deals this size.
Exhibit 2:
$1 BN+ Transactions Surge Again
Deals for $1 BN+ wealth managers surge in 2019, fueled by a 78% increase in $1 BN+ M&A transactions.
$BN+ Wealth Mgmt. M&A Transactions
52 43
24
20
20
8 12
28
23
$BN+ Breakaway Transactions
64
54
48
7
25
16
57
29
32
2014
2015
2016
2017
2018
Sources: Company Reports, SEC IARD, Investment News, and ECHELON Partners Analysis
2019
Given the 11-year expansion of equity markets and enterprise values since the market downturn in 2008 and the increased number of advisors over age 60, more entrepreneurs have been motivated to solidify their succession solutions and secure their liquidity events.
With more than 500 wealth managers over the $1 BN in AUM threshold, the deal volumes of recent years would suggest that over 10% of the firms have conducted a transaction. We believe this 10% rate is a more accurate representation of industry-wide deal volume, considering the high frequency of reporting of larger deals involving over $1 BN AUM. This 10% deal volume number is 3-4x the level observed in the broader market, which squares with ECHELON's estimate of the magnitude of unreported deals.
There is more buyer interest in these $1 BN+ AUM targets than in smaller firms, for the following reasons:
1. They Are Ideal Platforms: Those seeking to make multiple acquisitions in the RIA space almost always need to start with a platform: a firm that has everything it needs to get started. This includes the people, processes, and technology. Most firms with $1 BN in AUM or more are believed to possess the ideal mix of size and development.
2. They Are Established Businesses: Firms over $1 BN in AUM often have more infrastructure, systems, management, protective redundancy, and financial wherewithal. Together, that means these targets have lower risk and more durability across this business cycle. Said another way, if a key client or team member leaves the firm, the firm is likely to be more sustainable and to experience less disruption than would occur in a smaller firm.
3. Most Have Over $3 MM in EBITDA: Most professional investors require that the firms they invest in have at least $3 MM in EBITDA. They seek this as a cushion above breakeven financial performance.
10
ECHELON PARTNERS RIA M&A DEAL REPORT TM
Exhibit 3:
With transaction volume and acquisitions of larger firms at new all-time highs, it is only natural to ask: "What types of firms are leading this buying activity?" We have illustrated the answer in Exhibit 3.
RIAs: This group has increased only slightly from its all-time low in 2018, closing 57 deals, or approximately 28% of wealth management transactions in 2019. This level is still well below what the category was responsible for in most years between 2009 and 2017. This decline is likely due to wellcapitalized and sophisticated private equity firms that have been attracted to the industry in recent years.
We use the "RIA" label to describe those firms that have completed fewer than three deals, are generally smaller in their strategic reach, and usually have more modest financial resources. Therefore, transactions involving RIA acquirers tend to be smaller deals completed in the other categories.
Strategic Buyers or Consolidators: In 2019, these buyers accounted for 41% of transactions with a deal count of 83, the most of any category, and an amount in line with the category's levels since 2015.
In the past five years, strategic buyers and/or consolidators accounted for an average of 43% of the industry's reported deal activity, which is a large increase from the 31% of reported deals that the category was responsible for in the five years preceding that period. It is worth noting that this group is not all rollup firms. Instead, it represents primarily firms that a) already have a platform, b) have considerable industry knowledge, and c) have done more than a couple of M&A transactions.
Strategics Lose Ground, Maintain Title of Most Active Dealmaking Category
RIAs and
14% 25%
13% 19%
12% 15%
20% 6%
16% 18%
21% 14%
15% 7%
12% 8%
13% 6%
12% 7%
10% 10%
14% 12%
23% 9%
private equity firms increased
31%
33%
31%
30%
23%
34%
31%
35%
42%
40%
44%
47%
41%
their share of
deal activity.
30% 36% 42% 44% 44% 31% 47% 45% 39% 42% 36% 27% 28%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
RIA Strategic or Consolidator Bank Other
Sources: Company Reports, SEC IARD, ECHELON Partners Analysis
Banks: In 2018, bank acquirers saw their market share decline, leaving them as the smallest category in this acquisition chart. There is still life in the segment, though. Charles Schwab's purchase of TD Ameritrade's $1.3 TRN in AUM in November was the largest deal since ECHELON began tracking this data.
Other: The Other category experienced a record year, fueled by private equity firms that were attracted to the industry's larger platforms with recurring revenue, high margins, and leverageable EBITDA.
11
ECHELON PARTNERS RIA M&A DEAL REPORT TM
Exhibit 4 highlights the large increase in the aggregate AUM transacted since 2013. Total AUM transacted grew at 38% annually during this period, while the total deal count increased by only 14%, indicating that large transactions are becoming increasingly common. This figure does not include mega transactions ($20 BN+ in AUM). 2019 was a record high in the amount of AUM acquired and was 24% higher than 2018, the previous record year.
Exhibit 4:
Total Deal AUM Hits Record High for Fifth Year in a Row
285,040
Cumulative AUM transacted has increased at over 38% annually since 2013.
41,081
229,744
169,646 144,321 112,136
52,960
Total AUM Acquired ($MM)
Exhibit 5:
2013
2014
2015
2016
2017
*Total AUM excludes deals with AUM of $20 BN or higher and $100 MM or lower Sources: Company Reports, SEC IARD, ECHELON Partners Analysis
2018
2019
Exhibit 5 showcases average AUM per M&A transaction increasing 16% over 2018 and reaching new record levels. This represents the fourth year in a row that average deal size has exceeded $1 BN in AUM. If trend-level growth rates continue, deal volume could reach 210 in 2020 and average deal size could approach $2 BN, translating to over $400 BN in AUM changing hands.
Average AUM per Deal Surpasses $1 BN Again, Reaching Record High
1,477
Average AUM
1,269
per reported deal reaches
897
1,046
1,010
record highs.
456
540
2013
2014
2015
2016
2017
*Total AUM excludes deals with AUM of $20 BN or higher and $100 MM or lower Sources: Company Reports, SEC IARD, ECHELON Partners Analysis
2018
2019
12
Exhibit 6: Exhibit 7:
ECHELON PARTNERS RIA M&A DEAL REPORT TM
As seen in Exhibit 6, M&A activity is expected to increase across the board and despite the increase in $BN deal activity, transactions involving practices with under $100 MM in AUM will continue to dominate the M&A market by number of transactions. Most deals of this size go unreported, so it's very difficult to develop a precise picture of what is happening in that sector of the market.
Deals Under $100 MM Expected to Dominate Deal Volume
Deal Count
Total Deals by AUM Category
176 147
194 162
213 178
235 196
258 215
48 15
53 17
58 18
64 20
70 22
2020E
2022E
2024E
2026E
Sub $100 MM $100 MM to $1 BN $1 BN to $10 BN
2028E $10 BN+
Exhibit 7 shows that despite making up only a tiny fraction of total deals, the largest companies will continue to involve the vast majority of AUM transacted. In 2020, deals for over $10 BN in AUM are projected to account for 61% of AUM transacted, and all deals involving at least $1 BN in AUM are expected to sum to 90% of total AUM transacted for the year.
$BN Deals Dominate Assets Transacted
Total AUM Transacted by AUM Category
AUM Transacted ($BN)
525
595
630
700
770
240 13 74
265 15 81
290 16 89
320 98 18
350 108 19
2020E
2022E
2024E
2026E
Sub $100 MM $100 MM to $1 BN $1 BN to $10 BN
2028E $10 BN+
13
ECHELON PARTNERS RIA M&A DEAL REPORT TM
Exhibit 8:
The 25 Top $1 BN+ in AUM Transactions from 2018 and 2019
Seller
Buyer
TD Ameritrade Wells Fargo & Company Retirement & Trust
RedBlack
Charles Schwab Principal Financial Group Invesco
Buyer Type Bank
Seller AUM ($MM)
Date
1,300,000 11/21/2019
Other (Asset Manager) 827,000 4/9/2019
Other (Asset Manager) 350,000 12/12/2019
Advisor Group
Reverence Capital
Other (Private Equity) 268,000 5/9/2019
Cetera Financial Group Financial Engines USAA Mid Atlantic Capital Group
Genstar Capital
Other (Private Equity)
Hellman & Friedman/Edelman Financial Services
Charles Schwab
Other (Private Equity) Bank
Parthenon Capital Partners
Other (Private Equity)
224,500 169,400 90,000 90,000
7/17/2018 4/30/2018 7/29/2019 3/14/2018
Kestra Financial
Warburg Pincus
Other (Private Equity)
Landenburg Thalmann Financial Services Hilliard Lyons Signator Investors MD Financial Management
Global Retirement Partners
Fiduciary Network TD Ameritrade Trust Company United Capital Cadaret Grant & Co. Atlantic Trust Private Wealth Management
Advisor Group
Baird
Advisor Group Scotiabank/Canadian Medical Association
Hub International Limited
Emigrant Bank Broadridge Goldman Sachs
Atria Wealth Solutions
Canadian Imperial Bank of Commerce
Other (IBD)
Other (Regional Wirehouse) Other (IBD)
Bank
Other (Insurance Broker) Bank
Other (FinTech) Bank
Strategic or Consolidator
Bank
1st Global
Blucora
Other (Private Equity)
Loring Ward
Focus Financial/Buckingham Family
Strategic or Consolidator
Mercer Advisors
Oak Hill Capital
Other (Private Equity)
Marsh & McClennan Agency
Centurion Group
RIA
Pathstone
Lovell Minnick
Other (Private Equity)
Sheridan Road Financial
Hub International Limited
Sources: Company Reports, SEC IARD Website, ECHELON Partners Analysis
Other (Insurance Broker)
75,800 2/25/2019 72,800 11/11/2019
50,000 50,000 49,000
11/27/2018 6/21/2018 5/31/2018
40,000
40,000 35,000 25,000 23,000
9/12/2019
11/8/2018 4/17/2019 5/16/2019 4/29/2018
20,000 18,000 17,000 16,500 16,000 15,000 14,000
9/6/2019 3/19/2019 9/28/2018 9/17/2019 4/3/2019 11/5/2019 1/9/2019
14
ECHELON PARTNERS RIA M&A DEAL REPORT TM
Exhibit 9:
Exhibit 9 shows the breakdown of assets between RIAs and broker dealers from 2013 to 2022E. RIAs are expected to continue to expand their footprint, taking assets from broker dealers and large wirehouses. Assets under RIAs' management have grown at a CAGR of 3.6% since 2013 and are expected to continue growing at approximately 3% through 2022. Meanwhile, broker dealers' AUM has declined at a CAGR of -2.2% from 2013 to 2022E.
The shift is driven by advisors looking for more independence. Many also believe that the fee-only structure will help build better, longer-term relationships with clients.
Distribution of Industry Assets ($BN)
U.S. RIAs & Broker Dealers
16,000
14,000
12,000
Advisors' shift from broker
10,000
dealers and
8,000
wirehouses to 6,000
RIAs is expected to continue well
4,000
into the future. 2,000
0
2013 2014 2015 2016 2017 2018 2019 2020E 2021E 2022E
RIAs
Broker Dealers
RIA Progression
Broker Dealer Progression
Sources: Company Reports, Investment Adviser Association, SEC Website, ECHELON Partners Analysis Note: This data includes both wealth and investment managers that are registered as RIAs.
15
Exhibit 10:
ECHELON PARTNERS RIA M&A DEAL REPORT TM
Exhibit 10 shows a continuing trend of increased assets per advisor, which is a result of an aging advisor population. Baby boomer advisors have started retiring at a rapid rate, and at the same time, demand for financial advice has increased, creating demand for advisory services that outpaces supply, causing many to worry that the aging advisors will be stretched beyond their capacity. Most advisors have given little thought regarding succession planning, so identifying, hiring, and developing the proper candidates for these roles will be of crucial importance for financial advisors throughout the next decade.
Advisor Population and Assets per Advisor ($MM)
325,000
250
Financial Advisors Assets per Advisor ($MM)
320,000
200
As the advisor
population
decreases, assets
315,000
150
per advisor have
increased.
Heightened
310,000
100
consolidation has
also contributed to
this trend.
305,000
50
300,000
-
2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029
# of Financial Advisors
Assets per Advisor ($MM)
Source: ECHELON Partners Analysis
As the advisory population thins and assets grow on an expected average annual basis, fewer advisors could be responsible for more assets. This means that unless firms actively address these trends via recruitment and/or technology adoption, advisors will be overseeing approximately double the assets they presently oversee.
16
ECHELON PARTNERS RIA M&A DEAL REPORT TM
Exhibit 11:
As deal activity remains at all-time highs, consolidation throughout the industry has created a more competitive environment than ever. By increasing their scale, firms can invest in cutting-edge technology and service, which is becoming more critical in today's market, and hire top-tier management executives.
Exhibit 11 shows that despite the many benefits of scale, most advisors today work for firms managing less than $1 BN, a fact suggesting that we will continue to see a push toward consolidation, boosting M&A activity for this sector. Still, these smaller RIAs continue to grow at the highest rates, measured both by assets and number of advisors, as seen in Exhibit 12.
Advisors Are Concentrated at Small to Midsized Firms
Number of Advisors by AUM Category in 2019
2.0%
Nearly 72% of all registered advisors are associated with firms with less than $1 BN in AUM.
8.8% 14.2% 17.7%
57.3%
$0 - $100 MM $100 MM - $1 BN $1 BN - $5 BN $5 BN - 50 BN Over $50 BN
Exhibit 12:
Sources: Company Reports, Investment Adviser Association, and ECHELON Partners Analysis Note: This data includes both wealth and investment managers that are registered as RIAs.
Smaller RIAs Continue to Grow at the Highest Rates
Growth Rates by AUM Category 2018 vs. 2019
4.7%
The smallest and largest advisor categories saw the highest growth in both AUM and number of advisors.
-0.1%
0.7%
Increase in Number of Advisors
3.7%
2.2%
-0.2%
Increase in AUM
$0 - $1 BN AUM $1 BN - $100 BN AUM Over $100 BN AUM
Sources: Company Reports, Investment Adviser Association, and ECHELON Partners Analysis Note: This data includes both wealth and investment managers that are registered as RIAs.
17
ECHELON PARTNERS RIA M&A DEAL REPORT TM
As shown in Exhibit 13, private equity, independent broker dealers, and diversified financial services firms (the Other category) continued to drive M&A activity for $1 BN+ AUM wealth management firms, accounting for 37 deals and 58% of AUM transacted in 2018 and 2019. Banks closed only ten $BN+ deals in the past two years, but since six of these involved assets of $20 BN or more, they were responsible for 37% of AUM transacted.
The Strategic or Consolidator category was the second most active with 25 transactions, but since many of these were smaller, bolt-on acquisitions to existing platforms, the category accounted for only 3% of AUM transacted. RIAs were responsible for only 17 $1BN+ AUM transactions and a tiny 3% of AUM transacted, demonstrating that even the category's largest deals were quite small overall.
Exhibit 13:
89 $1 BN+ AUM Transactions in 2018 and 2019
private equity
and
independent
broker dealers
25
led the Other
category to
dominate AUM
transacted.
3%
37 58%
37% 17
10 2%
Strategic or
RIA
Consolidator
Bank
Deal Count AUM Transacted (%)
Sources: Company Reports, SEC IARD Website, ECHELON Partners Analysis
Other
18
ECHELON PARTNERS RIA M&A DEAL REPORT TM
Exhibit 14 shows that during 2019, the state of California once again led the way in terms of deal activity, accounting for almost 20% of deals. New York was second in deal count and Texas was third, with Ohio and Florida rounding out the top. Together, these five states accounted for nearly half of the firms acquired in 2019. Exhibit 15 shows that the number of advisors is growing significantly higher in the Western region, which may be a result of California's deal activity and the inorganic growth method leading to improved location of sellers.
Exhibit 14:
2019 State-Level M&A Activity and Growth Percentage of U.S. Wealth Management M&A Activity
California
Five states account for nearly one-half of U.S. wealth management M&A activity.
33.9%
19.5% 9.8%
3.4%
3.4% 4.6% 5.7%
7.5%
6.3% 5.7%
New York Texas Ohio Florida Pennsylvania Illinois Georgia Massachusetts Other
Exhibit 15:
Sources: Company Reports, SEC IARD Website, ECHELON Partners Analysis
U.S. Regional Growth in Number of Advisors Advisor Growth Rate by Region 2018 vs. 2019
5.3%
5.7%
2.0%
3.6%
Northeast
Midwest
South
Northeast: CT, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VT Midwest: AR, IA, IL, IN, KS, MI, MN, MO, ND, NE, OH, OK, SD, WI South: AL, FL, GA, KT, LA, MS, NC, SC, TN, TX, VA West: AZ, CA, CO, ID, MT, NM, NV, OR, UT, WA, WY Sources: Company Reports, Investment Adviser Association, ECHELON Partners Analysis Note: This data includes both wealth and investment managers that are registered as RIAs.
West
19
ECHELON PARTNERS RIA M&A DEAL REPORT TM
Section 2. Breakaway Deal Activity
As the definition of "breakaway deals" continues to broaden beyond advisors leaving wirehouses, and as RIAs have become an increasingly popular destination to migrate to, there has been a renewed interest in tracking the volume of this activity. The "RIA breakaway" is a relatively underappreciated phenomenon that is gaining in prevalence. While RIAs are becoming a relatively more attractive destination for all types of advisors to migrate to, some RIAs are not doing a very good job of aligning the contributions of their most valuable employees with the rewards provided. This is causing an increasing number of partnerlevel professionals to leave the RIAs they helped grow in order to join a "Newco" or other established RIA that shares more equity, profits, and governance with them than their former employer. Given the "slow to change" profile of some RIA owners, we expect RIA breakaways to continue increasing and to become a larger part of overall breakaway activity in the foreseeable future. Breakaway activity has increased substantially in 2019, in part due to an aging advisor population preparing for liquidity events, and the continued expiration of a relatively large portion of forgivable loans issued by wirehouses during the height of the 2008-2009 financial crisis to recruit and retain advisors. As Exhibit 16 shows, 14% of these expired within the past year, the highest annual total to date. Advisors are increasingly seeking independent platforms after the expiration of their loans.
20
ECHELON PARTNERS RIA M&A DEAL REPORT TM
Exhibit 16: Exhibit 17:
Expiration of Forgivable Loan Contracts Continues to Drive Breakaway Activity 14%
13% 12%
10% 10%
6% 5%
4% 2% 1%
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Sources: OnWallStreet.com and ECHELON Partners
In previous reports, we've discussed the correlation between the forgivable loans issued by wirehouses prior to and during the 2008 financial crisis that are currently reaching maturity and the acceleration of the breakaway rate. Exhibit 16 above shows that 14% of these loans expired in 2019, the highest annual portion to date. The expiration rate is expected to slow in 2020, so this may exert downward pressure on the breakaways total from the wirehouses. However, the ongoing economic uncertainty may still drive breakaway increases as more advisors seek independence sooner rather than later.
Largest AUM Gained by the Firm Team Joins ($MM)
Wells Fargo Advisors Financial Network
19,813
Stifel, Nicolaus & Company
19,651
Raymond James Financial Services
18,567
Raymond James & Associates
16,057
UBS Financial Services
14,250
Sources: InvestmentNews, OnWallStreet.com, and ECHELON Partners
Litigation fears regarding wirehouses leaving the broker protocol largely dissipated in 2018, and 2019 followed with several successful large breakaways that set a powerful precedent for advisors considering a move. Many advisors are also leaving large wirehouses for independent RIAs and hybrid firms. Exhibit 17 showcases the most popular landing spots for advisors breaking away in 2019. The biggest winner was Wells Fargo Advisors Financial Network, with $19.8 BN in AUM gained.
21
Exhibit 18:
ECHELON PARTNERS RIA M&A DEAL REPORT TM
Conversely, Exhibit 18 displays the firms that saw the largest drawdown in assets from departing advisor teams. Wells Fargo Clearing Services led the way in this regard, losing $75.9 BN in AUM in 2019, more than double the next largest loser, Morgan Stanley, which saw $34.7 BN in assets leave its platform in the past year.
Largest AUM Lost to the Firm Team Departs ($MM)
Wells Fargo Clearing Services, LLC
Morgan Stanley
34,771
Merrill Lynch
23,223
UBS Financial Services Inc.
22,623
First Republic
17,200
Sources: InvestmentNews, OnWallStreet.com, and ECHELON Partners
75,862
Exhibit 19 showcases the record breakaway activity that 2019 saw. The year's 655 breakaways represented a 22.4% increase in the previous year's record of 535 breakaway deals.
The CAGR in the number of breakaways is equal to 10.8% for the past five years. 2019's record comes despite a slow start to the year as the first quarter recorded only 94 breakaways. This turned around in the second quarter when breakaways hit 192, a quarterly record, which would quickly be surpassed in the fourth quarter, with its 231 breakaway deals. The increase is likely attributable to 2019's excellent stock market performance. Even the increased bonuses at wealth management firms from this performance likely did very little to address the disequilibrium of ownership and contribution levels that exists at thousands of firms, prompting the increased breakaway activity.
22
ECHELON PARTNERS RIA M&A DEAL REPORT TM
Exhibit 19:
Reported Breakaway Activity Hits Record Levels Number of Breakaways
YOY % Change
YOY % Change
2019 saw the most breakaways of any year since ECHELON began tracking this data.
Number of Breakaways
670
356 2.6%
392 10.1%
465 18.6%
430 -7.5%
423 -1.6%
535 26.5% 25.2%
Exhibit 20:
2013 2014 2015 2016 2017 2018 2019
Sources: SEC Database, Company Reports, Investment News, and ECHELON Partners Analysis
It is important to note that reported breakaway activity, as outlined in the graph, is an estimated onethird to one-fourth of true volume, with a majority of breakaways not being reported. Please see the note below Exhibit 1 for more details.
As shown in Exhibit 20, an increasing number of teams are choosing to shift to the RIA model each year. 2019 saw 121 teams leave for RIAs, accounting for just over 18% of all breakaways. This is also a record, beating out 2017, when 16.8% of teams left for RIAs.
Breakaways to RIAs Also Hit Record in 2019
Number of Breakaways
YOY % Change
YOY % Change
Approximately 18% of all breakaways are to RIAs, bringing the total to an alltime high 23% higher than the previous record.
25.0% 30
Number of Breakaways
90.0% 57
121
64
66
12.3% 3.1%
71 7.6%
82 47.1% 15.5%
2013 2014 2015 2016 2017 2018 2019
Sources: SEC Database, Company Reports, Investment News, and ECHELON Partners Analysis
23
ECHELON PARTNERS RIA M&A DEAL REPORT TM
Breakaway AUM increased in 2019 but average AUM per deal declined.
Exhibit 21:
Exhibit 21 shows that aggregate AUM associated with reported breakaway activity surged to new highs in 2019, reaching approximately $190 BN. Total breakaway AUM has increased for three straight years and has grown at a CAGR of 5.2% over the past five years.
Average AUM per breakaway declined to $284 MM in 2019, keeping with a trend of relatively little change that has been observed since 2015. Even the year's seven deals over $1 BN weren't enough to outweigh the increased breakaway activity among smaller advisors and drive up average AUM per transaction.
Breakaway AUM Has Grown Steadily Since 2013
Total Breakaway AUM ($MM) Average AUM per Breakaway ($MM)
156,599 135,563 120,472 130,993
189,946
93,039 86,281
261
292
280
310
293
220
2013 2014 2015 2016 2017 2018
Sources: SEC Database, Company Reports, Investment News, and ECHELON Partners Analysis
284 2019
Exhibit 22 provides a time series analysis of the number of breakaways with $1 BN+ AUM over the past seven years. Total volume of these deals dropped slightly and remains well below the recent high of 25 $BN+ breakaways that 2017 saw. Despite the drop in volume, AUM transacted continued to increase, demonstrating that overall both the size and volume of breakaway deals are increasing sharply.
These $BN+ deals have historically been slower and more complicated. However, the growing supply of resources being devoted to the facilitation of breakaway deals portends that it will only get easier for these highly sought-after targets to find and move to new homes if advisors of this size wish to do so.
24
Exhibit 22:
ECHELON PARTNERS RIA M&A DEAL REPORT TM
Volume of $1 BN+ AUM Breakaways Remains Steady
24
25
Advisors initiated 15 $1 BN+ AUM breakaways in 2019.
9 0.6%
57.1% 8 -7.3%
16
15
-11.1% 8.7% 2
19.5% 16.4%
2013 2014 2015 2016 $BN+ Breakaway Transactions
2017 2018 2019 YOY % Change AUM
Sources: SEC Database, Company Reports, Investment News, and ECHELON Partners Analysis
25
ECHELON PARTNERS RIA M&A DEAL REPORT TM
Independent BD platforms win big among larger breakaways.
In 2019, independent platforms like Raymond James continued to attract many $BN breakaways, with Raymond James Financial Services and Raymond James & Associates accounting for 21 deals. Wells Fargo Clearing Services saw the most departures, with 66 advisors leaving its platform.
Exhibit 23 lists the largest reported breakaways from 2018 and 2019.
Exhibit 23:
Breakaways with AUM Over $1 BN in 2018 and 2019
Team Leaving JPMorgan Chase & Co.
Top Breakaways 2018 and 2019
Team Joining
Firm Type
UBS Financial Services Inc.
Wirehouse
Breakaway AUM ($MM)
Date
30,000
3/23/2018
First Republic
Evoke Wealth
RIA
9,200
6/3/2019
JPMorgan Chase & Co.
Bank of America Merrill Lynch
Wirehouse
9,000
2/26/2018
First Republic UBS Financial Services Inc. RBC Wealth Management
IEQ Capital RBC Wealth Management UBS Financial Services Inc.
Asset Manager
Regional Wirehouse
Wirehouse
8,000 7,500 7,500
6/3/2019 12/4/2019 12/4/2019
Goldman Sachs
UBS Financial Services Inc.
Wirehouse
6,600
4/3/2019
Morgan Stanley
Dynasty Financial Partners
Other
6,000
4/26/2019
Bank of America Merrill Lynch First Republic Bank
Bank
4,500
4/21/2018
Bank of America Merrill Lynch Kore Private Wealth
RIA
4,100
6/1/2018
Brown Advisory Securities, LLC William Blair
Bank
3,000
2/28/2019
UBS Financial Services Inc.
Morgan Stanley
Wirehouse
2,860
5/24/2019
UBS Financial Services Inc. UBS Financial Services Inc.
First Republic Bank
Stifel, Nicolaus & Company, Incorporated
Bank
Regional Wirehouse
2,500 2,300
9/24/2018 4/23/2019
UBS Financial Services Inc.
Rockefeller Capital Management
RIA
2,200
12/7/2018
Bank of America Merrill Lynch First Republic Bank
Bank
Bank of America Merrill Lynch JPMorgan Chase & Co.
Wirehouse
UBS Financial Services Inc.
Purshe Kaplan Sterling
Independent Broker Dealer
Avondale Partners
Janney Montgomery Scott
Regional Wirehouse
Sources: SEC Database, Company Reports, Investment News, and ECHELON Partners Analysis
2,000 2,000 2,000 1,800
1/5/2018 1/12/2018 4/6/2018 5/11/2018
26
ECHELON PARTNERS RIA M&A DEAL REPORT TM
Section 3. WealthTECH Deal Activity
Over the past decade, financial technology ("FinTech") has gone from an underappreciated niche barely represented in Silicon Valley to one of the fastest-growing and hottest sectors in the tech industry. The FinTech label is applied to almost any startup that is trying to use technology to solve a financial problem and covers industries as diverse as insurance, brokerage, data analytics, budgeting, and tax planning. With all the interest and investment in this space, an ecosystem has developed, the main sectors of which are outlined in Exhibit 24.
Given ECHELON's focus on the subset of FinTech companies related to wealth management, in the spring of 2016 we coined the label "WealthTECH" to begin developing a sub-ecosystem for tracking the investment and development activity of these companies. Presently, we have mapped over 500 companies and their services to the six WealthTECH categories listed in Exhibit 24. There is a great deal of activity in this space as entrepreneurs rush in to address the fact that many people are inherently bad at managing their budgets and investing, which is spawning startups that offer lower-priced automated alternatives with the promise of delivering superior outcomes.
Exhibit 24:
Dramatic Ascension of FinTech Fuels Evolution of WealthTECH
FinTech Sectors
Currency WealthTECH Trading Exchange &
Transfer
Lending Payments Crowdfunding
WealthTECH Sectors
Operations & Modeling & Compliance Execution
CRM
Decision Marketing Accounting
Support
& Reporting
Source: ECHELON Partners
27
Exhibit 25:
ECHELON PARTNERS RIA M&A DEAL REPORT TM WealthTECH Market Map
Operations & Compliance
Modeling & Execution
Marketing
WealthTECH
CRM
Accounting & Reporting
Decision Support
Exhibit 25 outlines some of the most well-known firms that fit into the six WealthTECH categories outlined in Exhibit 24. Notice that the largest players have offerings in nearly every category. These firms are able to use data from the combined channels to enhance offerings across their platforms and help customers gain the optimal level of service.
28
ECHELON PARTNERS RIA M&A DEAL REPORT TM
Prior to delving into the details of WealthTECH dealmaking, we thought it prudent to provide an update on the FinTech M&A ecosystem. 2019 FinTech investment remained strong despite a dip from the record-breaking 2018, which was especially high because of Ant Financial's $14 BN offering. Total U.S. FinTech investment declined 11% from the previous year, but is still nearly triple the next highest year, as displayed in Exhibit 26.
The largest deals of the year included Fidelity National Information Services' $33.5 BN acquisition of Worldpay, Global Payments' purchase of Total System Services Inc. for $22.1 BN, and Fiserv's acquisition of the KKR-backed First Data Corp. for $21.8 BN.
Exhibit 26:
U.S. FinTech Investment Declines From 2018 Record
$53
FinTech funding declined from
$46 226%
2018's record
but remains very high by historical standards.
Note: this data
111% 76%
33% 36%
$14 $14 $16
$8
-1% 16%
-11%
includes VC, PE, $3
$4
and M&A
activity.
2012 2013 2014 2015 2016 2017 2018 2019
FinTech Investments ($BN)
YOY % Change
Sources: CB Insights, KPMG, and ECHELON Partners Analysis
29
ECHELON PARTNERS RIA M&A DEAL REPORT TM
Exhibit 27:
FinTech deal volume once again reached record levels in 2019, with 383 M&A transactions announced; activity has increased by 10.1% in the past 12 months. The IPO market saw more activity than in recent years with 14 taking place in U.S. markets, the highest total since 2015, as seen in Exhibit 27.
2018 FinTech Deal Activity Hits an All-time High
Number of FinTech IPOs rises to its highest level since 2015.
3
6 126
3 90
6 93
2 92
6 66
1 79
4 83
2 69
4 71
0 87
2 77
1 62
1 75
0 97
1 93
1 82
0 76
2 69
3 81
107
Quarterly FinTech Deals and IPOs
2015 2015 2015 2015 2016 2016 2016 2016 2017 2017 2017 2017 2018 2018 2018 2018 2019 2019 2019 2019 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
M&A IPO
FinTech deal activity increased for the third straight year even over 2018's remarkable record year for M&A, as shown below. In 2019, there were 397 FinTech deals, the highest recorded annual total to date and 13.4% higher than the industry saw in 2018. The total number of M&A deals and IPOs has increased at 8.9% annually for the past five years. There was also more life in the FinTech IPO market as firms tried to take advantage of record-high capital markets levels.
17
11
4
13
14 2
341
302
301
348
383
246
Yearly FinTech M&A Deals & IPOs
2014
2015
2016
2017
2018
M&A IPO
Sources: Company Reports, CB Insights, KPMG, and ECHELON Partners Analysis
2019 30
ECHELON PARTNERS RIA M&A DEAL REPORT TM
Exhibit 28:
Focusing our attention more specifically on WealthTECH M&A, Exhibit 28 highlights the fact that 2019 once again broke records, as WealthTECH companies closed 31 deals. The increased activity comes as wealth managers are increasingly looking to technology to create new solutions or enhance those they already have in place. New investors are also entering the market, lured by the success of artificial intelligence-driven roboadvisory services, micro-investing solutions, and new digital banks preparing to challenge the traditional banking sector.
M&A Transactions in WealthTECH Hits Record High in 2018
WealthTECH
M&A activity
increases for the
fifth straight
year.
8
31 27
22 19 17
Annual WealthTECH Transactions
2014
2015
2016
Sources: Company Reports and ECHELON Partners Analysis
2017
2018
2019
The number of WealthTECH transactions grew at a compound annual rate of 31% between 2014 and 2019. The 31 transactions seen in 2019 is triple the average level of 10 deals per year observed between 2013 and 2015.
Deal activity is expected to remain strong as the economy grows as businesses continue to look for ways to improve efficiency and adjust to an increasingly competitive environment. Traditional financial services companies have also continued to invest in these WealthTECH firms to adapt to the changes in the market that these new entrants are driving. Customers are becoming increasingly accepting of their advisors using technology including artificial intelligence-based investing tools or robo-advisors and many expect it. Despite this increase, most investors still prefer to have a trusted advisor to speak with if they have any questions or concerns.
31
Exhibit 29:
ECHELON PARTNERS RIA M&A DEAL REPORT TM The Race to a WealthTECH Product Suite
Sources: Company Reports and ECHELON Partners Analysis
Exhibit 29 displays the race to build a WealthTECH product suite that operations and compliance, modeling and execution, decision support, accounting and reporting, CRM, and marketing via traditional M&A, Partnerships, and White Label Products. The list incorporates large strategics ranging from investment manager goliaths (BlackRock, Morningstar) and diversified financial service companies (Broadridge, FIS) to custodians & brokerages (BNY Mellon | Pershing, Charles Schwab, LPL Financial), software companies (SS&C, Orion), and TAMPs (Envestnet, Vestmark, AssetMark); the race to build the most robust product suite is open to almost any well-capitalized financial services company.
32
Exhibit 30:
ECHELON PARTNERS RIA M&A DEAL REPORT TM
Exhibit 30 looks at M&A deal activity over the past year in the WealthTECH sector. Firms providing financial modeling and execution services continue to be the most common acquisition targets, accounting for 50% of targets for all deals closed in the past 12 months.
WealthTECH Transaction Breakdown 2019
7.1% 3.6% 7.1% 3.6%
7.1%
50.0%
21.4%
Accounting & Reporting Marketing CRM Decision Support Operations & Compliance Modeling & Execution Other
Sources: Financial Planning Tech Survey, Company Reports, and ECHELON Partners Analysis
33
ECHELON PARTNERS RIA M&A DEAL REPORT TM
Frequently Used Terms
Bank � A financial institution licensed, and typically insured by the federal government, to receive deposits and make loans. A bank may also provide financial services, such as wealth management, currency exchange, and safe deposit boxes.
Consolidator � A firm that consolidates several business units of several different companies into a larger organization, with the intent of improving operational efficiency by reducing redundant personnel and processes.
FinTech � An emerging sector of technology-enabled financial services. The term has expanded to include any technological innovation in the financial sector, including innovations in financial literacy and education, retail banking, investment, and crypto-currencies.
Independent Broker Dealer (IBD) � A broker dealer firm that offers its services to financial advisors operating as independent contractors. The Independent broker dealer business model focuses on comprehensive financial planning services and investment advice.
Investment Management � A service that invests its clients' pooled funds into securities that match declared financial objectives. Asset management companies provide investors with more diversification and investing options than they would have by themselves.
Private Equity (PE) � A source of investment capital from high-net-worth individuals and institutions for the purpose of investing and acquiring equity ownership in companies.
Registered Investment Advisor (RIA) � An advisor or firm engaged in the investment advisory business and registered either with the Securities and Exchange Commission (SEC) or state securities authorities.
Strategic Buyer � A type of buyer in an acquisition that has a specific reason for wanting to purchase the company. Strategic buyers look for companies that will create a synergy with their existing businesses. Also known as synergistic buyers.
Wealth Management � A high-level professional service that combines financial and investment advice, accounting and tax services, retirement planning, and legal or estate planning for a fee.
WealthTECH � A sector of the FinTech industry that captures the universe of technology-driven companies that cater to the wealth and investment management industries.
Wirehouse/Broker Dealer � A firm in the business of buying and selling securities, operating as both a broker and a dealer, depending on the transaction.
34
About ECHELON Partners:
ECHELON Partners is a Los Angeles-based investment bank and consulting firm focused exclusively on the wealth and investment management industries. ECHELON was formed to:
Address the needs of an underserved subset of the
financial services industry -- investment product developers, distributors, and technology providers
Provide objective, unbiased advice void of conflicts
emblematic of larger institutions
Help entrepreneurs working at companies of all sizes
navigate the numerous complex decisions that come with attaining growth and liquidity
Our Expertise
ECHELON's service offerings fall into three categories:
INVESTMENT BANKING MANAGEMENT CONSULTING VALUATIONS
ECHELON's comprehensive range of services help its clients make the tough decisions relating to acquisitions, sales/divestitures, investments, mergers, valuation, mergers and acquisitions, strategy, new ventures, management buyouts, capital raising, equity sharing, and succession planning.
ECHELON's business is making companies more valuable through its visionary advice and execution excellence. Accordingly, ECHELON measures its success by the enterprise value it creates for its clients. With an unparalleled quantity and quality of investment banking experience in the wealth and investment management industries, no other investment bank can match the caliber of advice or financial results delivered by the professionals of ECHELON Partners.
Our History
ECHELON Partners was founded in 2001 by Dan Seivert, the firm's current CEO and Managing Partner.
Over the past 18 years, the firm's principals have completed more M&A advisory assignments, valuations, and strategic consulting engagements for its three target industries than any other investment bank. In that time, hundreds of executive teams and boards have chosen ECHELON Partners to help them envision, initiate, and execute a diversity of complex business strategies and transactions.
1500 Rosecrans Avenue, Suite 416 Manhattan Beach, CA 90266 888.560.9027 | www.ECHELON-partners.com
Follow us on Twitter: @echelon_group
How ECHELON Can Help
Provide Transaction Assistance (Mergers, Sales, Acquisitions, Capital Raising): Valuation and transactions go hand-in-hand, whether buying, selling, raising capital, divesting, investing, and/or restructuring. The professionals at ECHELON have extensive experience handling these transactions and matching the appropriate deal processes to meet the many objectives of the stakeholders involved.
Conduct a Valuation: Managers need to know firm value and, more importantly, the key drivers of value. ECHELON has emerged as the leader in delivering high-quality valuation reports that cut through irrelevant information and tell managers exactly what drives value and how their firm is performing.
Provide Continuity & Succession Planning: With its industryspecific experience and focus, ECHELON Partners equips its clients with continuity plans and succession plans designed to mitigate risk and plan for the future. ECHELON develops continuity plans for equity owners who want to put in place a short-term plan for a previously selected successor to take over their firm in the event of a catastrophe, such as death or disability. ECHELON's more involved succession planning process helps equity owners develop a formal plan for their retirement or known departure from the firm, whether they want to pursue an internal sale to colleagues or family or want to take steps to prepare the firm for an external sale.
Advise on Equity Compensation Structure: As firms grow and evolve, it is common for a wedge to develop between those who create value and those who reap the benefits (through equity ownership). This necessitates the development of equity-sharing strategies that are fair, that can foster employee retention, and at the same time minimize tax consequences and complexity. ECHELON is experienced in developing these structures for a host of unique situations.
Advising on Equity Recycling and Management: Managers need a method of internal succession whereby a senior partner sells a portion of his or her equity to either one or more junior partners currently with the firm or incoming partners not yet with the firm.
Advise on the Buyout of an Equity Partner: A problem that arises for most firms that remain private occurs when one or more of the founders need liquidity or need to be bought out. These situations require thoughtful valuation and structuring that correspond to the particular situation.
ECHELON by the Numbers
20+ years of experience valuing financial services companies
400+ investment banking advisory assignments
2,000+ valuations conducted
#1 in conducting valuations for wealth managers with $1 BN+ in AUM
400 investment opportunities vetted and valued
2,000+ acquisition targets evaluated
25 published reports focused on wealth manager M&A, management consulting, and valuation
35
ECHELON's Leadership
DAN SEIVERT | CEO AND MANAGING PARTNER
(p) 888 560 9027 ext. 101
(e) dseivert@echelonpartners.com
Dan Seivert is the CEO and founder of ECHELON Partners. Prior to starting ECHELON Partners, Mr. Seivert was one of the initial principals of Lovell Minnick Partners, where he helped invest over $100 MM in venture capital across 15 companies. Before his involvement in private equity, Mr. Seivert was a buy-side analyst at The Capital Group (American Funds), where he valued firms in the asset management and securities brokerage industries. He has helped ECHELON's clients make the tough decisions with respect to acquisitions, sales/divestitures, investments, mergers, valuation, M&A strategy, new ventures, management buyouts, capital raising, equity sharing, and succession planning. In his various roles, Mr. Seivert has conducted detailed valuations on over 500 companies, evaluated more than 2,000 acquisition targets, and authored 25 reports dealing with the wealth and investment management industries. Mr. Seivert has an Advanced Bachelor's degree in Economics from Occidental College and a Master of Business Administration from UCLA's Anderson School of Management.
CAROLYN ARMITAGE, CFP�, CIMA� | MANAGING DIRECTOR
(p) 888 560 9027 ext. 303
Carolyn Armitage is a Managing Director at ECHELON Partners and has more than 30 years of experience being a change management catalyst. She improves market share, profitability, people, processes, and team dynamics for RIAs, broker dealers, and hybrid RIAs. Over her financial services career, Ms. Armitage has been an OSJ branch manager, a sales and marketing manager for HD Vest Financial Services, a managing director for Western International Securities, the head of advisory services for ING Advisors Network (Cetera & Voya), and the head of large enterprise business management consulting for LPL Financial. Ms. Armitage is devoted to continuous learning and improvement. She is LEAN Certified, a Six Sigma Green Belt, a CA Life and Variable Contracts Agent, and holds numerous FINRA licenses. She is a CFP�, CIMA�, and ChFC. She has a Bachelor of Science in Business Administration from the University of Minnesota and a Masters degree in Management from The American College.
(e) carmitage@echelonpartners.com
MIKE WUNDERLI | MANAGING DIRECTOR
(p) 888 560 9027 ext. 202
(e) mwunderli@echelonpartners.com
Mike Wunderli is a Managing Director at ECHELON Partners and is integrally involved in all aspects of the firm's activities. Prior to joining ECHELON, Mr. Wunderli founded Connect Capital Group (CCG), where he advised private middle-market companies on pre-transaction planning, growth financing options, and the development and execution of exit strategies. Before founding CCG, Mr. Wunderli spent 12 years at Lehman Brothers and UBS as a Senior Vice President in the Private Wealth Management division. During his time at Lehman Brothers and UBS, Mr. Wunderli executed over $2 BN in investment-banking and privateequity transactions for his clients, and managed over $400 MM for high-net-worth investors and their families. Over his career, Mr. Wunderli has worked with hundreds of private companies, helping their owners navigate the critical stages of growth and engineer the most appropriate and lucrative exit strategies. He has also worked with many top investment managers, hedge funds, private-equity funds, family offices, trading desks, and a variety of capital providers. Mr. Wunderli received a Bachelor of Arts from Brigham Young University and a Master of Business Administration from The Wharton School of the University of Pennsylvania.
36
Sample Transactions & Advisory Assignments Executed by the ECHELON Team
has completed the acquisition of
ECHELON provided the Management of OBS Financial with: Valuation and
Sell-Side Advisory Services
ECHELON provided the Management
Concentric Wealth Management, LLC with: Buy-Side Advisory Services
ECHELON provided the Management
of Blue Oak Capital, LLC with:
Valuation and Financial Advisory Services
has agreed to a merger with
ECHELON provided the Management of FiComm Partners and Nexus Strategy, LLC with: M&A and Financial Advisory Services
ECHELON provided the Management
of Halite Partners with:
M&A and Financial Advisory
Services
has agreed to a transaction with
ECHELON provided the Management of Lexington Capital Management Inc.
with: M&A and Financial Advisory Services
ECHELON provided the Management
of Massey Quick Simon & Co. with:
Valuation and Financial Advisory
Services
ECHELON provided the Management
of Oakworth Capital Bank with:
M&A Advisory Services
ECHELON provided the Management
of Retirement Income Solutions with:
Valuation and Financial Advisory Services
ECHELON provided the Management
of Rowling & Associates with:
Valuation and Financial Advisory Services
ECHELON provided the Management
of SignatureFD with:
Valuation and M&A Advisory Services
ECHELON provided the Management
of The Gensler Group with:
Valuation and Financial Advisory Services
has completed the acquisition of
Horizon Planning, Inc.
ECHELON provided the Management
of Wealthstream Advisors, Inc. with:
Valuation and Buy-Side Advisory Services
has completed the acquisition of
ECHELON provided the Management of Merit Financial Group with: Valuation and Buy-Side Advisory Services
ECHELON provided the Management
of Centennial Securities with:
Valuation and Financial Advisory Services
ECHELON provided the Management
of Bridgeworth, LLC with:
Valuation and Financial Advisory Services
37
Sample Transactions & Advisory Assignments Executed by the ECHELON Team
ECHELON provided the Management of Brownson, Rehmus & Foxworth, Inc. with: Financial Advisory Services
Research Methodology & Data Sources:
The ECHELON Partners RIA Deal Report is an amalgamation of all mergers, majority equity sales/purchases, acquisitions, shareholder spin-offs, capital infusions, consolidations and restructurings ("deals") of firms that are SEC Registered Investment Advisors ("RIA"). The report is meant to provide contextual analysis and commentary to financial advisors pertaining to the deals occurring within the wealth & investment management industries. The deals tracked and identified in the Deal Report include any transaction involving an RIA with over $100 MM assets under management, which have also been reported by a recent data source (e.g., SEC IARD website, a press release, ECHELON Partners Deal Tracker, industry publications). This methodology aims to maintain consistency of data over time and ensure the utmost accuracy in the information represented herein. Additionally, the report includes financial advisors who terminate relationships with other financial service institutions in order to join RIAs. As with the other transactions reported in the Deal Report, the identified breakaway advisor transitions are transitioning over $100 MM assets under management to a new financial services firm. The reason for this being that transitions of this magnitude are more often than not accompanied with compensation for the transition of assets. The contents of this report may not be comprehensive or up-to-date and ECHELON Partners will not be responsible for updating any information contained within this Deal Report. The ECHELON RIA M&A Deal Report: An Executive's Guide to M&A in the Wealth Management, Breakaway, and Investment Management Industries. � Copyright 2020 ECHELON Partners. All rights reserved. No part of this publication may be reproduced or retransmitted in any form or by any means, including, but not limited to, electronic, mechanical, photocopying, recording, or any information storage retrieval system, without the prior written permission of ECHELON. Unauthorized copying may subject violators to criminal penalties as well as liabilities for substantial monetary damages up to $100,000 per infringement, costs and attorney's fees. The information contained in this report has been obtained from sources believed to be reliable, and its accuracy and completeness is not guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein. ECHELON can accept no responsibility for such information or for loss or damage caused by any use thereof. The views and other information provided are subject to change without notice. This report is issued without regard to the specific investment objectives, financial situation or particular needs of any specific recipient and is not to be construed as a solicitation or any offer to buy or sell any securities or related financial instruments.
38
ECHELON PARTNERS RIA M&A DEAL REPORT TM
THE DEALS & DEALMAKERS SUMMIT 2020
We hope to see you at this year's Deals & Dealmakers Summit!
September 8-9, 2020 | Newport Beach
The Resort at Pelican Hill 22701 S Pelican Hill Rd., Newport Coast, California
92657
39
Three-Time Winner
ECHELON Partners honored as Top Investment Bank and top Succession/Ownership Transition Services Provider
INVESTMENT BANKERS MANAGEMENT CONSULTANTS VALUATION EXPERTS to the Wealth and Investment Management Industries
Daniel Seivert Managing Partner & CEO dseivert@echelon-partners.com 888.560.9027 Ext. 101
Carolyn Armitage, CFP�, CIMA� Managing Director carmitage@echelon-partners.com 888.560.9027 Ext. 303
Mike Wunderli Managing Director mwunderli@echelon-partners.com 888.560.9027 Ext. 202
Andrea Polizzi Vice President apolizzi@echelon-partners.com 888.560.9027
Barnaby Audsley Associate baudsley@echelon-partners.com 888.560.9027
Sam Sphire Analyst ssphire@echelon-partners.com 888.560.9027
ECHELON Partners 1500 Rosecrans Ave., Suite 416 Manhattan Beach, CA 90266
888 560 9027 www.echelon-partners.com
Member: FINRA/SIPC