DeVoe & Company RIA M&A Survey Finds Over Half Of Respondents Expect Lower Valuations And Flat Or Falling Deal Activity In 2023
In a major reversal after years of rising deal activity, DeVoe & Company’s new Annual RIA M&A Outlook Report, which captures advisor perspectives on M&A trends, reveals the lowest expectations in the survey’s history for activity and valuations.
DeVoe surveyed 112 individuals between June and October. Respondents were senior executives, principals or owners of RIAs ranging in size from $100 million to over $10 billion in assets under management (AUM).
Respondents’ Views
Fifty-six percent of respondents expect lower valuations in 2023 compared to 8% of respondents looking forward to 2022 in last year’s survey, and only 8% of respondents expect higher valuations in 2023 compared to 39% of respondents last year. Almost 60% of respondents expect M&A activity to plateau or fall in 2023.
Although 54% of respondents intend to purchase another RIA within two years – in line with historical trends – only 59% of $1 billion-plus AUM firms plan to acquire compared to 74% last year. DeVoe found that the most prevalent sellers are RIAs with less than $500 million in AUM.
Motivators And Hurdles
Growth of clients and assets was the primary motivator, topping the list for 49% of buyer respondents and 56% of seller respondents. Among buyer motivations, acquiring talent came in second, followed by expanding into new markets or geographies, and then achieving scale, with expanding services and capabilities as a lesser motivation. Among seller motivations, liquidity came in second, followed by succession planning and then achieving scale.
The survey results suggest that identifying the right partner is the main hurdle to overcome for both buyers and sellers, according to the report. Critical factors encompass investment approach, financial planning methodology, overall client experience, team culture, deal pricing and time to work on acquisitions. Seasoned buyers dominated M&A in 2022, with DeVoe estimating that they accounted for 89% of transactions.
Tips And Forecasts
The report provides several tips for first-time buyers. These include allocating 12 to 18 months to the process, assessing capital or lending options well ahead of time, crystallizing both the buyer’s value proposition and its ideal profile of a target seller, as well as documenting how the integration plan will unfold after the contract is signed.
“Although DeVoe & Company expects that RIA M&A will continue to increase over the next five years, our crystal ball for the deal volume over the next few months is a bit cloudy,” the report concluded. “It will likely be bumpy in the near term, as the long term trends upward.”
This market insight follows our recent coverage about DeVoe, which found that through Dec. 6 the firm recorded 242 transactions this year, already exceeding 2021’s full-year total of 241 deals. DeVoe projected approximately 260 transactions for 2022, an 8% increase over 2021. For the fourth quarter through Dec. 6, 39 transactions posted, dropping 34% from 59 transactions for the same period last year.
Chris Latham, Deputy Managing Editor at Wealth Solutions Report, can be reached at clatham@wealthsolutionsreport.com
