September 28, 2023
Louis Diamond Quoted
by Larry Roth
“Another one bites the dust … The announced sale of Avantax to Cetera marks another chapter in the IBD industry’s consolidation,” Diamond Consultants President Louis Diamond posted on LinkedIn. “While consolidation is normal across most industries, this deal raises the question: Are there ‘too few’ BDs left to drive competition and provide advisors with options that best suit their practices? While Avantax wasn’t a prolific recruiter, they filled a niche for CPAs with affiliated wealth practices.”
It remains to be seen whether these four deals truly marked the beginning of a fresh growth trend or whether they reflect opportunistic plays that happened to occur in relatively short succession. Furthermore, as long as the U.S. persists in a significantly higher interest rate environment than prevailed during the M&A frenzy of the previous decade, the elevated cost of capital could continue to weigh on deal flow.
Spending hundreds of millions to billions of dollars on a business is trickier when Federal Reserve target rates are 5.25% to 5.50% instead of when they are 0.00% to 0.25%. One potential benefit to higher rates is that some broker-dealers may be able to earn greater cash sweep revenues and yield income, and in turn bolster IBD valuations.
Even so, broker-dealer M&A has stayed well below its levels from the previous decade – which in some cases, I had firsthand experience with, as the former CEO of its key players.