Private equity firms and acquirers have been waiting for the chance to create their own portfolios of business – one with steady cash flows. Most founders and senior executives have been weighing retirement at the same time in which the private equity investors have been drawing on the wealths of recurring asset-based fees of wealth managers.
This is to ensure high levels of retaining clients and also pave the way for an opportunity to speed up growth via acquisitions. Most of the wealth managers are seen to use private equity in order to make acquisitions, which will lead to consolidation in the long run.
Experts in the wealth management space said that this is an industry that has recurring revenue and this is one that has been growing via acquisitions, and this is also a time when a lot of firms have been growing rapidly as well. The experts feel that this is what is the most exciting about private equity (PE) in the recent times.
Let’s talk about some numbers now. Right in the first half of this year in 2022, most private equity (PE) firms and their portfolio companies have backed at least 48 asset management deals across the globe. And, the total worth would be around $6.7 billion, which is inclusive of both direct investments and add-ons, as per various sources.
It’s to be noted that the deal count and value are those that are among the highest figures in the last one year, and the private equity (PE) space has been quite on track, and this is most likely to exceed 2021, which is the last year’s record of 82 management deals that included private equity (PE) investors.
All things considered, one has to note that the private equity investment in the wealth management space is not at all new, but what has ramped things up is its unique and distinguished business model, the fragmented state of the industry – one which offers the calibre for consolidation and also provides private equity (PE) investors with a chance to conduct roll-up transactions that help on creating value, this can lead to an increase in private equity (PE) activity.
Most large wealth managers have been banking on these factors, and have been pursuing accretive acquisitions and also have been accelerating their growth which is well beyond what can be achieved by attracting clients in a natural process over a period of time. One of the key examples in this regard is Allworth Financial, which is one of the wealth managers that has taken massive advantage here.
They are a serial acquirer that have bought 21 wealth managers in the last five years. This had led to an increase in growth, with its total assets growing to more than $15 billion from $2.8 billion in the year 2018. Mergers and acquisitions (M&A) have also ramped up over the past few years, wherein some advertisers who were to retire soon were finding successors and were also looking forward to monetizing the work of their lives through a sale to a strategic buyer or a financial sponsor.
As per a recent report from Cerulli Associates, more than one-third of advisers that manage roughly 40% of total industry assets are now expected to retire within the upcoming 10 years. There have been a total of 307 mergers and acquisitions (M&As) that were announced in the private equity (PE) space last year, and additionally, private equity was directly or indirectly involved in around 60% of the total acquisitions. The year before in 2020, there were around 205 mergers and acquisitions (M&As).
Also, right in the first quarter of this year in 2022, the acquirers that were backed by private equity (PE) firms had accounted for mostly 55% of wealth management acquisitions. Among these, the most popular ones include Creative Planning which is backed by General Atlantic, Beacon Pointe, one that is backed by KKR, and Mercer Advisors, which is backed by Oak Hill Capital and Genstar Capital.
Experts hold this prediction that this year the momentum is likely to continue, and they estimate that 2022 is likely to see a new record of around 338 transactions in the private equity (PE) space, and the amounts could even be higher.