The pre-COVID M&A space saw multiples rapidly reaching ridiculous levels, not unheard of in booming economies with daily all-time market highs.
The pandemic promptly put the brakes on deal-making many predicted would continue al least until the election, a premature killjoy that left many firms scrambling.
So how bad was it, exactly?
Succession planning specialists ECHELON Partners is out with Q2 2020 RIA M&A Deal Report, which contains confirmation of what was predicted, with a few big surprises.
Most notably, ECHELON found that while M&A activity dropped by 20% from Q1, the average deal size during the quarter surged to an all-time high.
“While deal volume and activity slowed, the deal sizes remain at historically high levels, with 16 firms that have more than $1B involved in the quarter’s 35 transactions,” the Manhattan Beach, Calif.-based firm reported. “Overall, the average acquired firm in 2020 had over $1.5 BN in AUM—an all-time high.”
ECHELON said there were 35 deals recorded in the second quarter, which “is the lowest quarterly total since Q3 2017.”
“The spread of COVID-19, which shocked capital markets and the broader economy in March and April, caused a slowdown in the deal process for many. A number of deals that were expected to be finalized in Q2 were delayed and are now on pace to be completed in Q3.”
Breakaway activity
As for the ongoing exodus to the independent channel, CEO Dan Seivert and his team observed low volume but record AUM transacted in breakaway activity.
“Average breakaway AUM in Q2 2020 was $494 MM, which tops Q1’s record-setting average of $362 million and is 74% higher than 2019’s average breakaway AUM of $284 million,” the report concludes. “Volume continues to remain low in [the first half] 2020, and total [year-over-year] activity is expected to decrease by 27%.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
