Q1 M&A Deals Undaunted by Volatile Markets

New Fidelity data shows the record-setting pace of mergers and acquisitions measured during 2021 continued through the first quarter of 2022, with some key caveats. 

Fidelity has published its first quarter 2022 adviser industry merger and acquisition report, finding the pace of M&A transactions has not slowed during the first part of the year.

Specifically, the first quarter concluded with 58 total registered investment adviser transactions, up 26% over the figure measured for the first quarter of 2021. The deals represented a collective $89.3 billion in assets under management, which is actually down 2% over the first quarter of last year.

As those numbers imply, there was a marked increase in the number of sub-$500 million transactions in the first quarter of 2022, with 43% of the quarter’s deals coming in below that AUM figure. Large transactions also continued, according to Fidelity, with 31% of the quarter’s M&A transactions coming in above $1 billion.

According to Fidelity, year-end pressure to complete deals was felt in late 2021, in anticipation of potential tax changes and rising interest rates. However, an anticipated slowing of deal activity has not yet appeared.

Several firms were highly active during the quarter, with Beacon Pointe purchasing six firms, Creative Planning scooping up five and Focus Financial acquiring four. Fidelity’s analysis suggests deal pipelines are “reportedly robust” as the industry enters the second quarter.

“Serial acquirers remain confident regarding their plans and are striving to reap the benefits of greater scale and brand presence,” the report states. “As we learned following a brief slowdown during the early months of the COVID-19 pandemic in March through May 2020, the fundamentals driving wealth management M&A remain in place. These include adviser owners seeking succession plan options; the emergence of substantial capital from motivated PE players; the need for scale to enhance client service models and invest in and leverage fintech capabilities; and, for many firms, the need for help with organic growth.”

According to Fidelity, these key trends will continue to drive the reshaping of independent wealth management into well branded regional and national enterprises. At the same time, while there are concerns about a potential recession, rising interest rates affecting the cost of capital and market volatility possibly affecting the consistency of recurring revenue streams, buyers remain confident with their inorganic business plans.