Big firms were in play, private-equity firms were active; next two years could see 'frenetic activity'
More big registered investment advisory firms were in play in the third quarter, and private-equity buyers returned to the marketplace and participated in three significant deals, according to a new report from Pershing LLC.
And private-equity funds will continue to have a significant impact in the marketplace, said Mark Tibergien, chief executive of Pershing Advisor Solutions LLC.
Private-equity investing comes with specific restrictions, such as a five-year time limit to return capital with appreciation to investors, and those kinds of terms could spur further activity, he said.
“You're playing against the clock on this a little bit,” Mr. Tibergien said today.
The next two years could see “frenetic activity” and promises “a lot of intensity of trying to do deals because they are time-boxed,” he said.
Private-equity funds cash out of investments through an initial public offering or a sale to another party, Mr. Tibergien said.
Typically, institutional buyers of stocks will consider only companies with a market capitalization of $1 billion or more, he said.
That means the current private-equity buyers will need to beef up assets under management and buy again, or simply divest, Mr. Tibergien said.
Although deal activity was robust, the number of deals for RIAs was down from the third quarter last year, when 13 occurred, according to the report.
More large firms were involved in mergers and acquisitions in the third quarter than in the second quarter, according to the report.
Pershing tracked eight transactions in the report, with the median deal involving an RIA with $1.35 billion in assets under management. In the second quarter, the median firm involved in a merger or acquisition had $800 million in assets under management.
And after being largely absent in RIA acquisitions for the past year-and-a-half, private-equity funds were buyers in three of the eight deals during the quarter, according to the report.
“The most notable trend of the quarter is the prevalence of several large private-equity firm transactions,” to the report said.
Those three deals accounted for more than 70% — or about $11.2 billion — of the assets of the target firms this quarter, according to the report.
The recent noteworthy deals included:
‰ Private-equity firm Warburg Pincus announced in August it would buy the controlling stake in The Mutual Fund Store, a fee-only RIA managing more than $6 billion in total assets in more than 70 national franchises.
‰ Private-equity giant The Carlyle Group announced the same month that it had taken a minority interest in Avalon Advisors, a wealth manager with nearly $4 billion in assets;
‰ Focus Financial Partners announced in late September that it was purchasing two RIAs, The Colony Group and Hufford Financial Advisors. With those two deals, Focus Financial has more than $45 billion in assets under management.
The report's totals capture publicly announced mergers or acquisitions involving retail-oriented RIAs with at least $50 million in assets under management or $500,000 in revenue.
