M&A Update: New Records and Picking Partners

When it comes to succession planning amid record-setting merger and acquisition activity, understanding the different partnership opportunities emerging in the marketplace is essential to maximizing a firm’s equity value.

Wise Rhino Group has published a new analysis of the rapid merger and acquisition (M&A) activity occurring in the retirement plan advisory industry, finding the pace of deals continues to accelerate year over year.

Retirement plan advisory firm M&A activity hit record levels last year, marking the third consecutive year that deals have increased. After 13 and 26 advisory firm transactions in 2018 and 2019, respectively, 2020 saw 33 transactions, with another 22 posted in the first quarter of 2021 alone. As the team at Wise Rhino Group explains, these deal levels reflect the ongoing trend of increasing retirement and wealth advisory firm consolidation.

According to the report, one fact that is clear amid the flurry of M&A action is that few—if any—of these deals represent a pure walk-away sale. That just doesn’t happen in this space, underscoring the notion that succession planning and business transitions often happen in steps that involve multiple partners. Put another way, for the typical advisory firm owner who is looking to use his business equity as his own retirement nest egg, the process of selling is not just going to be a matter of handing over the keys to the castle and getting a big paycheck. Instead, acquirers expect selling advisers to remain part of the business for years and potentially decades to come.

According to Wise Rhino Group, there are numerous buyer firm categories that retirement advisory firms will most likely consider when seeking a partner. In fact, the new analysis counts 26 different firms with at least one retirement advisory firm acquisition since 2018.

The types of acquiring firms include national registered investment advisers (RIAs), national insurance brokerages, regional insurance brokerages, private equity (PE) firms, wealth-focused RIAs, retirement platform affiliates and others. As Wise Rhino Group explains, each type of buyer brings different relative advantages to the table.

Retirement and Wealth Advisory RIAs: These firms were originally founded and organized to provide retirement consulting services to company C-suites. Many of these firms have since evolved past just providing C-suite services toward also engaging the plan participant through services that include advice, managed accounts and wealth advisory to participants’ broader household assets. These firms include CAPTRUST (PE partner GTCR), SageView Advisory Group (PE partner Aquiline Capital Partners) and Prime Capital (backed by a private family office).

Insurance Brokerage: According to Wise Rhino Group, these firms are arguably the best positioned to integrate retirement advisory firms, as most have established operating companies and have coveted growth currency in the form of employee benefits and property-casualty referrals. They are also the most experienced acquirers and are very effective at integrating new partner firms. Firms such as Hub International, NFP, Marsh & McLennan Agency (MMA), OneDigital, Gallagher, Lockton and USI have been the most active strategic acquirers. Other firms, including Alera Group and AssuredPartners, are beginning to emerge on the scene and offer greenfield opportunities for retirement advisory firms.

Private Equity: PE firms are highly active in the retirement and wealth advisory space, both directly and indirectly. The indirect participation has occurred primarily on the insurance brokerage side, where many of the major players are PE-backed. On the direct side, GTCR and Aquiline Capital Partners have made investments in CAPTRUST and SageView Advisory Services, respectively. These two 2020 investment opportunities drew significant PE interest. The other PE firms that might remain interested could include TowerBrook, Parthenon, General Atlantic, Lightyear Capital, Abry and Warburg Pincus.

Wealth Advisory RIA and Broker-Dealers: The wealth advisory firm aggregators have not been particularly active with retirement advisory firms. However, most are beginning to understand the significant synergy and growth advantages of having a retirement operation feeding wealth advisory opportunities. Wealth advisory firm aggregators that have acquired retirement advisory firms or showed interest include Cerity Partners, Focus Financial Partners, Hightower, Ashworth Financial, Mercer Advisors and Mariner Holdings.

Other Firms: There are a few other firms that have shown interest in acquiring retirement advisory firms, including Edelman Financial Engines (EFE), which just added Warburg Pincus as an investor partner. EFE has an advantage in this space, having built the technology plumbing between recordkeepers, adviser managed accounts and its wealth advisory business.