PwC has published updated asset and wealth management industry consolidation statistics for the third quarter of 2019, finding deal volume decreased somewhat relative to the highly active first two quarters.
Still, asset and wealth management merger and acquisition (M&A) deal activity remains on track to set an annual record during 2019, PwC’s data shows.
According to Greg Peterson, financial services leader for PwC deals, and Gregory McGahan, asset and wealth management leader, three forces have been spurring consolidation: fee pressure, slowing growth in assets under management, and the persistent shift from active to passive investing.
PwC’s data shows wealth management remained the most active sub-sector, with dealmaking fueled primarily by continued consolidation among registered investment advisors (RIAs). Notably, PwC finds reported deal value fell to the lowest level since the first quarter of 2018, because of the absence of a reported megadeal.
“While deal volume fell, the pressure to streamline, adapt, and change isn’t declining,” Peterson says. “Transforming operations is one potential strategy. The other is M&A, which could be the only viable way to survive in this rapidly consolidating industry.”
Peterson and McGahan highlight how disclosed deal value during Q3 slumped 74% compared with the second quarter. Deal volume also fell, to 48 transactions during the third quarter, compared with 63 during the second. Yet, even with this slump, the total deal value of $13.7 billion during the first nine months of 2019 is nearly three times the total during the same period of 2018.
From a strategic viewpoint, Peterson and mcGahan expect that more investors and acquirers outside the asset management space will pursue deals. Insurers will probably be especially active, they explain.
These findings match the latest update of Fidelity Clearing and Custody Solution’s quarterly merger and acquisition report, which shows the registered investment adviser (RIA) channel continues to see strong deal activity.
According to Fidelity, at the end of the third quarter of 2019, M&A activity in the RIA channel had already surpassed the number of transactions and the total assets under management (AUM) the channel saw in all of 2018. Compared to the same period in 2018, the total number of transactions increased 43% (from 72 to 103) and the client assets increased 13% (from $487.8 billion to $551.4 billion).
Fidelity further finds RIAs completing multiple transactions accounted for two-thirds of total activity so far in 2019. The review points to the growing concentration of AUM among the largest firms. The findings bring to mind Hub International’s RIA buying spree in September, when it announced in rapid succession six retirement plan advisory-focused acquisitions. In one week, the firm announced acquisitions of EPIC Retirement Services, StoneStreet, Washington Financial, Perennial Pension & Wealth, Inter-Mountain Retirement Partners (MRP) and WhartonHill.
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