Advisory firms were on pace last year to set new records in merger and acquisition activity until they hit the pause button in the fourth quarter — likely because lawmakers' efforts to overhaul the tax code led to a surge of client meetings.
According to the latest FA Insight M&A Activity Update on advisory firm M&A trends, the number of mergers or acquisitions targeting independent advisory firms dropped to 70, compared with 80 in 2016.
The report from TD Ameritrade Institutional, which acquired FA Insight in 2016, gathers transaction data from news outlets, press releases and other secondary research sources. Its M&A database includes publicly announced transactions involving the acquisition or merger of an independent advisory firm serving households or individual clients, and which manages at least $50 million in assets or generates at least $500,000 in annual revenue.
While the number of deals was on pace to beat 2016 results, a halt late in the year resulted in the number of deals targeting independent advisory firms falling by 10-13%.
What was the reason for this slowdown? The report says numerous forces may have had an impact on activity levels — among them the tax overhaul.
"Many advisors cite being distracted late in the year with client concerns related to tax reform, while some 'multi-dealers' — those firms that have engaged in at least three deals in the past five years — appear to have been in the process of securing capital to fuel acquisitions for the coming year," the report states.
According to the report, market forces suggest the slowdown is likely only temporary. M&A activity will likely pick up thanks to "the demand for succession solutions, coupled with healthy firm profits and security market growth."
