[From Issue 1 2020]
Until recently, 401(k) firms were buying and selling in an M&A mashup unlike any previously seen.
[Related: RIA M&A Decade in Review (and 2020-2029 Preview)]
“Any industry that can consolidate will,” says Dick Darian, CEO of The Wise Rhino Group, an M&A advisory firm on both the buy and sell-side. “And certainly, the retirement advisory market was ripe for consolidation.”
M&A among financial firms overall hit a record in 2018, one that was again shattered in 2019, according to “Mergers & Acquisitions Activity: 2019 Year-End Update” from FA Insight and TD Ameritrade Institutional (which, in a bit of a meta moment, is itself the subject of a high-profile acquisition by Charles Schwab).
Many factors contributed to the announcements, and were pretty much what one would expect: “a strong stock market, abundant capital, high firm valuations, increasing demand for scale, aging firm founders hungry for an exit strategy and multiple options for transacting partners,” according to the report.
A similar report from Echelon Partners followed suit, finding that 2019 was the seventh straight record-setting year in terms of the number of deals completed, which represented a 12.2% increase over 2018 and a 15.4% annual growth rate over the past five years.
In the 401(k) space specifically, industry veteran Darian points to recent Hub International rollups as emblematic of what’s happening.
Hub acquired several high-profile retirement advisory firms in a frenzy of activity last fall, including notable names like StoneStreet Pearl River (Barbara Delaney), Washington Financial Group (Joe DeNoyior), Inter-Mountain Retirement Partners (Chad Larsen) and, earlier in the year, Sheridan Road Financial (Jim O’Shaughnessy), among others.
Yet, as with concerns about an overheated economy as a whole, anxiety is on the rise over the current acquisitions’ staying power, and whether the clock is ticking in the runup to the November election.
Early Innings
Darian isn’t buying it, and looks to similar industries for guidance.
“The insurance brokerage side is very similar to retirement and wealth; an established marketplace and a good number of businesses. There are more firms on that side, but they’ve been going through a high amount of acquisitions for over 10 years. They’re in the seventh or eighth inning. On the RIA side, it’s the fourth or fifth inning, and you’re seeing the building of these mega-firms, which is not that different from the wirehouses forming 30 and 40 years ago. And now retirement firms (with a little bit of wealth) are in the first inning.”
