The stock market's steep decline in 2008, combined with one of the worst recessions in decades, resulted in fewer mergers and acquisitions among registered investment advisory firms last year, according to the latest data from Charles Schwab Corp.
Seventy-one deals, representing $103 billion of assets under management, were completed in 2009. In 2008 there were 88 deals representing $137 billion of assets under management. The average deal size last year remained just under $1.5 billion.
RIAs were the most active buyers of other RIAs, accounting for roughly 55% of the deals. Wealth management holding companies accounted for roughly 30% of the deals and regional banks roughly 10%.
Dave DeVoe, managing director of strategic development at Schwab, said that several positive indicators point to a pickup in deals in 2010.
The stock market decline in late 2008 and the early part of 2009 hampered many transactions, DeVoe said. He noted that M&A deals generally take about nine months to negotiate, so there was a "six-to-eight-month period where it declined fast, and the buyers walked away from the table in a lot of situations."
The aggressive stock market rally since March bodes well for 2010, but there was a lag effect on revenues and cash flow last year. In fact, the three main underpinnings of M&A deals — revenues, cash flow and risk — all moved in the wrong direction in late 2008 and early 2009.
DeVoe points to several positive indicators to support deal activity in 2010: improving cash flow, risk becoming more attractive and private equity coming back to the market.
DeVoe also has seen rising interest from advisers in M&A dealmaking. Demographics are also playing a role, as the average principal of an RIA firm is 54, with more than 30% topping age 60. Many of these owners are looking to get out of the business.
DeVoe said 2009 will come to be considered "a near-term dip" in an otherwise steady upswing in M&A deals. In fact, before 2009 there were four successive years of increasing M&A activity. DeVoe said he now expects five to seven years of steady incline.
