Wealth managers want to pass the baton. PE firms are ready

A once-in-a-generation consolidation in the wealth management industry has private equity firms and acquirers eyeing the chance to build up their portfolios of businesses with steady cash flows.

Founders and other senior executives are weighing retirement at the same time that PE investors have been drawn to wealth managers’ recurring asset-based fee revenue, high levels of client retention and potential to hasten growth through acquisitions. Some wealth managers are using PE backing to make acquisitions, further fueling consolidation.

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“You are looking at an industry that has recurring revenue and that is growing through acquisitions, and a lot of firms are growing quite rapidly—that’s why private equity is excited about it,” said Scott Hanson, a co-founder of wealth management company Allworth Financial, which is backed by financial services-focused PE investor Lightyear Capital.

In the first half of this year, private equity firms and their portfolio companies backed 48 asset management deals worldwide worth a total of $6.7 billion, including both direct investments and add-ons, according to PitchBook data. The deal count and value are both among the highest figures of the past 12 years, and the sector is on track to exceed last year’s record of 82 management deals involving PE investors.

Source: Pitchbook

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