Deals & People July 14, 2022

Wealth M&A Slows, but Strategic Deals Continue to Be Inked

Alera Group, a national insurance and wealth services firm, is among the latest established entities to begin picking up smaller independent wealth management shops in key markets.

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This week, Alera Group, an independent national insurance and wealth services firm, announced its acquisition of DFG 401(k) Advisors, an independent qualified retirement plan services company.

DFG is led by Jeff Anderson, president and managing partner. In a press release announcing the deal, he says the firm brings to the table more than 30 years of experiencing collaborating with “conscientious companies” in the effort to scrutinize and benchmark their 401(k) plans.

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“The goal is to improve benefits, save money, streamline administration and ensure compliance amid the confusion of changing legislation and regulations,” he adds. “We are a dedicated team of industry professionals, protecting fiduciaries from corporate and personal financial liability and enhancing potential return-on-plan investment opportunities.”

Based in Phoenix, Arizona, DFG 401(k) Advisors, provides a variety of services in fiduciary guidance, plan performance and employee financial wellness. Alan Levitz, CEO of Alera Group, says in the release that DFG 401(k) Advisors is dedicated to helping clients execute the best strategies in order to achieve their desired level of financial security.

“The team is aligned with Alera Group as it endeavors to exceed client expectations, as they provide quality retirement solutions,” Levitz says. “We look forward to welcoming this team to Alera Group and expanding our footprint in Arizona.”

DFG 401(k) Advisors joins Alera Group under the name BCG 401(k) Advisors through Benefit Commerce Group (BCG), an Alera Group company headquartered in Scottsdale. The BCG 401(k) Advisors team will continue serving clients in their existing roles. Terms of the transaction were not announced.

Wise Rhino Group served as exclusive adviser to DFG 401(k) Advisors.

Peter Campagna, partner at Wise Rhino Group, says in a separate statement that DFG’s partnering with a firm like Alera will help them bring their client service to even higher levels.

“These two firms working together have a very bright future,” Campagna says.

As Campagna observes, the acquisition represents a push into the wealth and retirement area by Alera Group, following on the heels of its June acquisition of Wharton Group. Similar to other strategic acquirers, Alera’s M&A strategy is about bringing retirement plan consulting and wealth management capabilities together with a large healthcare benefits footprints—all under the Alera Group brand.

News of Alera’s acquisition comes after total wealth management M&A activity decreased for the second straight quarter of 2022, after reaching an all-time high in the final quarter of 2021. This is according to Echelon Partner’s latest RIA M&A Deal Report.

Specifically, Echelon finds quarterly deal volume declined again in the second quarter, but it still remains elevated from a historical perspective. Industry-wide, there were 87 deals announced in the second quarter. While a decrease from the most recent periods, the transaction volume level still makes it the third most active quarter since Echelon began tracking the data.

As Echelon points out, strategic acquirers and consolidators continued to execute on their M&A pipelines despite the more volatile markets. This level of commitment from experienced acquirers means that deal structures and valuations have remained relatively attractive for sellers, the report concludes.

The Markets July 14, 2022

On the Future of Tech Stocks

A new analysis shows the MSCI World Information Technology Index reach a valuation peak in January, clocking the tech sector’s highest valuation level since the dot-com bubble burst.

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Putnam Investments recently released a tech-focused equity insights brief, in which the firm’s equity team members hare their research on emerging opportunities in the stock market.

Written by Putnam portfolio managers Neil Desai and Di Yao, the brief, “Now what? What’s next for tech,” notes how the first half of 2022 was rough for investors, especially those with exposure to the technology sector. Many tech stocks across global markets experienced violent selloffs, and tech indexes are now firmly in bear market territory.

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The volatility seen in technology stocks can largely be attributed to a belated correction after abnormally stretched valuations and significant outperformance for the sector over the past decade, the brief says. The MSCI World Information Technology Index reach a valuation peak in January, clocking the sector’s highest valuation level since the dot-com bubble burst. At that point, the sector’s valuation was considerably higher than the long-term average.

These excessive valuation levels persisted for much of last year before starting to show signs of cracking last November, the brief says. At the close of 2021, the index delivered a 30% annual return and an annualized three-year return of 40%. As of June, the index traded at 19.6x, compared to a 10-year average of 19x and a 5-year average of 22.5x.

“While early, we are just now beginning to see some tech bellwethers incorporate some caution in their outlooks,” the brief says. “However, many are still blaming their downgrades on transitory issues, such as foreign exchange and supply shortages, rather than broad-based demand weakness. We believe that will be the next leg as we readjust, and heightened volatility could continue for the next several months.”

The brief highlights two industries investors should watch, including Chinese internet companies and semiconductors. Over the past two years, many investors have chosen to step away from China’s tech stocks, based on never-before-seen regulatory actions the Chinese government has taken since late 2020—calling them “uninvestable.”

“Recently, however, we have started to see some policy easing from the Chinese government in a bid to help offset economic headwinds,” the brief says. “China is loosening monetary policy, contrary to most other global markets, and could potentially enter an economic expansion cycle in the second half of 2022.”

While many high-quality, large-cap internet platform companies have seen their market valuations halved, the brief says, “trough valuations” combined with positive earnings upgrades could pave the way for potential outperformance in an area of tech that many investors have exited completely.

Putnam says its view on semiconductors for most of the past two years has been mostly bullish, but they are now taking a more cautious approach as companies may be shipping more chips into end markets than can be justified by demand.

Chip companies are likely to see large earnings downgrades later this year and in 2023 as demand falls in certain end markets, the brief says. However, there are some positive long-term semiconductor trends such as the accelerating adoption of electric vehicles and the industry may be less impacted as global supply chains are reshuffled and expanded.

Looking forward to future technology trends, the brief says it expects 2022 to be a year of normalization. The past few years and the pandemic have changed the landscape in ways that will shape the industry over the next decade.

“As almost every life experience becomes more digitally connected, we see businesses ranging from internet giants to vertical software vendors becoming more critical to enabling this transition,” the brief says. “Regardless of current challenges, long-term tailwinds include demand from businesses for cloud computing, software as a service and the digitization of their enterprises. We believe there remains a long runway for growth as tech companies penetrate these massive addressable markets.”

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