Private equity dominates RIA deals; choices for sellers

Private equity firms were involved in roughly 76% of the 120 registered investment advisor transactions completed in the second quarter, the highest share on record. That concentration is increasing pressure on firm owners because many PE-backed buyers can supply larger cash payments at closing than other acquirers.

Echelon Partners, which compiled the data, reported that nearly 90% of Q2 deals were done by buyers with at least three prior acquisitions. The average assets under management for acquired firms in the quarter was about $2 billion, the largest average since 2021. Dan Seivert, CEO of Echelon Partners, noted the pattern: activity is concentrating among a smaller group of repeat, well-capitalized buyers.

Rising borrowing costs have shifted more transactions toward equity financing. Many RIAs have limited tangible assets to pledge as loan collateral, which reduces lenders’ willingness to provide debt. As a result, buyers relying on debt may be unable to offer large cash payments, while private equity-backed buyers often can fund a larger share of the purchase price in cash.

Non-PE buyers frequently structure deals with a smaller upfront payment — in some cases around 20% — and the remainder as contingent payments or earnouts tied to future performance. Those arrangements typically require sellers to remain involved with the firm to meet financial targets, which can postpone retirement plans.

Jess Polito of Turkey Hill Management described the choice facing owners as a moral and financial dilemma. She said owners weigh obligations to clients and staff against a sizable immediate payout, and added that the difference in offers can determine whether a seller can retire at once or must stay on to earn contingent payments.

Lawyers and advisers who work on RIA transactions point to additional advantages held by PE buyers. Corey Kupfer, an M&A attorney for advisory firms, observed that private equity groups bring experienced deal teams that can source, underwrite, finance and close transactions more quickly than less-capitalized buyers, making non-PE bidders harder to compete with on speed and certainty.

Dealmaking in Q2 showed further concentration: 62.5% of transactions were completed by 24 firms that executed multiple deals during the period. Stratos Wealth Management recorded the most acquisitions at 11. The largest individual deal in the quarter, the purchase of Mariner Advisor Network, was completed by a buyer without private equity backing. Deal volume edged down from 142 deals in Q1 to 120 in Q2; Echelon projected the year could approach roughly 500 transactions.

A valuation report from DeVoe & Co. indicated that prices may level off after recent increases. Market participants say buyers have become more selective about targets but remain competitive for firms that meet their criteria. Firms that show consistent organic growth and stable client relationships continue to attract the strongest bids.

Sellers now face a trade-off between larger immediate cash payments offered by well-capitalized buyers and deferred, contingent payments that require continued involvement with the business.