RIA assets changing hands already up 35% over ’06

The mergers-and-acquisitions market for registered investment advisers continues to boom and has already outpaced last year’s total by 35%, when tallying total RIA assets under management that have been bought and sold.

Year-to-date through last Thursday, $70 billion in RIA assets had been part of deals, including a significant block of acquisitions announced last week, versus $52 billion for all of 2006, according to Schwab Institutional in San Francisco.

Last Thursday, Focus Financial Partners LLC of New York said that it will acquire five independent-wealth-management firms with a total of $8 billion in client assets.

The deal comes at a time when many advisers remain reluctant to sell their practices, said David DeVoe, director of M&A for the strategic-client group at Schwab Institutional.

“We are seeing a hesitation by a lot of principals to sell,” Mr. DeVoe said.

“But bigger deals are being done,” he said. “As advisers see larger and larger firms do deals, their confidence level will increase.”

Through last Thursday, 56 deals had occurred for the year, compared with the same number year-to-date through Oct. 4 of 2006.

More deals could occur this quarter, potentially surpassing $80 billion in RIA assets acquired this year, Mr. DeVoe said.

And the market for such acquisitions is certainly percolating, one industry observer said.

“I think we’ve seen some very attractive growth in the M&A market,” said Rudy Adolf, chief executive of Focus Financial. “It’s only the beginning of the cycle, and we expect an increase in activity.”

The five firms that Focus Financial is purchasing are Benefit Funding Services Group of Irvine, Calif., Dion Money Management Inc. of Williamstown, Mass., GW & Wade of Wellesley, Mass., JFS Wealth Advisors of Hermitage, Pa., and Lara Shull & May Ltd. of Falls Church, Va.

Terms weren’t disclosed.

Since January 2006, Focus has acquired 14 firms, which handle more than $25 billion in client assets. It usually takes a stake of between 40% and 60%.

And as firms start to plan for next year, more deals may be completed, said Paul Lally, president of Gladstone Associates LLC of Conshohocken, Pa.

He said that trends driving the market include the desire for some younger advisers to sell to bigger firms, and the fact that the industry is fragmented, which makes it more difficult to attract clients.

Also, deals are a way to recruit talent, Mr. Lally said.

Midsize RIAs, with perhaps about $500 million in assets under management, are looking to reach the “magic number” of $1 billion in client assets, he said.

“The thinking is, "Maybe I can sell my firm and get there with someone else’s help,’” Mr. Lally said.

Advisers are getting older, and private-equity firms looking to invest in or acquire RIAs are contributing mightily to the surge in deals, according to observers.

In deals, RIA firms are valued by earnings before interest, taxes, depreciation and amortization, he said.

Smaller advisers — those with about $300 million in client assets — are commonly valued at five to seven times their earnings. Firms with $500 million to $1 billion in assets are valued at six to nine times earnings, Mr. DeVoe said.

Schwab Institutional doesn’t do investment banking, but his group offers help in M&A and succession planning, he said.

Bruce Kelly can be reached at [email protected].