April 27, 2011

BNY Mellon's Pershing Advisor Solutions Unit Releases New Study Focusing on Mergers and Acquisitions Activity for Independent Registered Investment Advisors

JERSEY CITY, N.J., April 27, 2011 — Pershing Advisor Solutions LLC, a BNY Mellon company, announced today the availability of a new independent study, Real Deals 2010: Definitive Information on Mergers and Acquisitions for Advisors, that provides an in-depth analysis of important trends shaping the merger and acquisition (M&A) marketplace in the advisory industry. The study finds that M&A activity among firms with more than $500,000 in revenue was flat in 2010, valuations were lower than in past years, both the type of transactions and the participants continued to change significantly, and yet an uptrend in deal activity is expected.

Real Deals 2010, developed with FA Insight, builds on key findings from past Pershing Advisor Solutions' Real Deals studies published in 2006, 2008 and 2009, and provides a practical guide for advisory firms that are contemplating a sale, merger or acquisition. The report begins with a review of key developments in mergers and acquisitions since the release of the last Real Deals in 2009, and provides insight that is derived from a decade of transaction data compiled specifically for the Real Deals report series. This year, special attention is devoted to the concept of firm value—how it is measured and how owners can better influence and build value within their advisory firms.

Highlights from the new study include:

  • Slower Pace of Transactions Continues, but a Rebound Is Inevitable – Both the number of deals and the time required to complete deals slowed considerably relative to the last peak in 2007. Only 41 deals involving firms with more than $100 million in assets under management (AUM) were completed in 2010, however, an up-tick by year end suggests an imminent turnaround.
  • Firms Sold Shrank in Size – Firms acquired in 2010 tended to be much smaller relative to those acquired in previous years. Registered investment advisors (RIA) with less than $100 million in AUM accounted for 18% of all firms sold or merged. This is double the percentage of firms that size that were acquired each year from 2004 to 2009. The median AUM of all acquired firms in 2010 was only $400 million, the lowest median asset level observed in the last 10 years and about 15% lower than the median AUM of deals completed in 2009.
  • Composition of Buyers Continues to Evolve – The shift in the composition of buyers of RIA firms observed in Real Deals 2009 continued into 2010. RIA-to-RIA deals now account for about half of transaction activity. Banks, which were prominent buyers at the turn of the millennium, have faded in prominence. Serial buyers, which have captured a great deal of industry attention in recent years, have recently lost momentum.
  • Valuations Vary Widely – The limited number of publicly-available transaction details makes generalizing about deals challenging. However, the study suggests that valuations for premium targets are either off 10% to 15% from the perceived 2007 peak or are holding steady. Less desirable and smaller firm deals, however, are experiencing more significant value compression according to those interviewed.
  • Understanding Value Drivers is Critical to Creating and Realizing Value – A solid understanding of value improves an owner's ability to create, build and ultimately realize value regardless of whether a transaction is imminent. As detailed in the study, these drivers include a combination of leading and lagging indicators of performance and a series of qualitative and quantitative firm characteristics ranging from profitability, operational efficiency and productivity to firm management and culture, client demographics, value proposition and the structure of the client service relationship.

"Advisory firm owners need to maintain a solid understanding of current M&A trends as part of their own planning and management process," said Kim Dellarocca, director in global marketing for Pershing LLC. "Owners would be wise to run their firms with an eye toward long-term value creation and a thoughtful transition process for their practice and their clients. This approach will ensure sustainability that isn't dependent on a key principal."

"Unless the owner's preferred resolution is shuttering a firm, some type of a sale, merger or acquisition is inevitable," said Dan Inveen, principal at FA Insight. "Every advisory firm owner must someday come to a monumental decision concerning their business, and the Real Deals series was designed to enable RIAs to better understand the trends impacting transactions in order to realize the most value from their firms."  

Real Deals 2010 is a component of Pershing's Ideas Without Limits(SM) thought-leadership program and was commissioned by Pershing Advisor Solutions LLC and independently executed by FA Insight. Transaction data and expert interviews form the foundation of this report.  A variety of sources, including survey data, trade publications and regulatory filings also contributed to the development of the transactions database. To receive a copy of the study, please send an email to pasinformation@pershing.com or visit www.pershingadvisorsolutions.com.

Pershing Advisor Solutions LLC (member FINRA/SIPC) is an affiliate of Pershing LLC and a leading custodian to independent registered investment advisors and dually registered advisors working in conjunction with many of Pershing LLC's introducing broker-dealer customers. Pershing LLC (member FINRA/NYSE/SIPC), a BNY Mellon company, is committed to delivering dependable operational support, robust trading services, flexible technology, an expansive array of investment solutions, practice management support and service excellence. Through an innovative custody platform, Pershing Advisor Solutions delivers superior expertise and scalable and customizable solutions to help independent registered investment advisors manage and grow their businesses. Additional information is available at www.pershingadvisorsolutions.com.

Pershing LLC (member FINRA/NYSE/SIPC) is a leading global provider of financial business solutions to more than 1,500 institutional and retail financial organizations and independent registered investment advisors who collectively represent more than five million active investors. Located in 21 offices worldwide, Pershing and its affiliates are committed to delivering dependable operational support, robust trading services, flexible technology, an expansive array of investment solutions, practice management support and service excellence. Pershing is a member of every major U.S. securities exchange and its international affiliates are members of the Deutsche Borse, the Irish Stock Exchange and the London Stock Exchange. Pershing LLC is a BNY Mellon company. Additional information is available at www.pershing.com.

BNY Mellon is a global financial services company focused on helping clients manage and service their financial assets, operating in 36 countries and serving more than 100 markets. BNY Mellon is a leading provider of financial services for institutions, corporations and high-net-worth individuals, offering superior investment management and investment services through a worldwide client-focused team. It has $25.5 trillion in assets under custody and administration and $1.2 trillion in assets under management, services $11.9 trillion in outstanding debt and processes global payments averaging $1.7 trillion per day. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation. Additional information is available at www.bnymellon.com.