Why were two reasonably successful RIAs merging?
The answer: the new firm, Savant Capital Management wants to create some economies of scale to expand nationally.
More importantly though, should we expect more deals?
The answer: Yes, but probably not like this one.
"Typically, two large, fee-only, fiercely independent, successful RIAs have no compelling reason to merge the way that they two did unless they have a big vision or they are trying to achieve a big goal," said David Selig, the CEO of Advice Dynamics Partners, who managed the deal.
When the Savant Capital deal closes, the company will have 10 offices in Illinois, Wisconsin, Virginia and Florida, and will manage more than $2.7 billion in assets. Selig said he thinks the deal has the potential to be the largest combination of RIAs this year, and he expects more deals this year, but it isn't likely you will see another deal quite like this one.
"Savant is trying to fill what they perceive is a hole in the marketplace," he said. "Savant sees a need for a national brand, a national RIA that will uphold the fiduciary standard and provide fee-only advice in multiple states."
Aggregators, including HighTower Advisors, are building national networks of fee-only, fiduciaries. The Chicago-based company said it is attracting advisors at a faster pace in the first quarter than it did all of last year. Last week, at the Tiburon CEO Summit XXII in New York, Tiburon Strategic Advisors Managing Partner Charles “Chip” Roame used HighTower as an example of the breakaway shift of advisors to the independent channel. Roame estimated that 92% of HighTower’s advisors came from wirehouse firms.
"HighTower appeals to wirehouse advisors," Selig said. "It is very well capitalized by private equity money and they can lure very large producers with very large checks and that business model works well for them. Savant Capital is different. It has the cash flow to do more deals and the capital commitment from lending institutions to make more deals."
Selig said he expects more RIA mergers and acquisitions in 2012 than 2011, which was greater than 2010, but the primary driver will continue to be succession planning.
"As the advisor population ages, at least half, and up to 70% don't have a viable succession plan," he said. "If advisors want to monetize what they have built, they have to look to outside partners to facilitate succession and that means M&A."
On the face of it, merger and acquisition activity among RIA firms for the first quarter of 2012 nationwide makes it appear that this year could be the biggest in a decade, according to Schwab.
However, nearly half of the $23.95 billion in total assets under management transacted across 17 deals through March 31 came from one deal. Veritable, the country’s third-largest RIA with $10.06 billion in AUM, was acquired by Affiliated Managers Group for an undisclosed amount last month.
The decade-long rise in M&A activity is being driven by the need for scale among RIA firms who are hard-pressed to generate profitability in a market with increasing costs associated with compliance, technology and other factors.
Selig said RIAs need to generate $1 billion in asset under management to achieve scale. "This is a moving target," he said, "and it is always moving north."