What’s the Deal with the Rise of Sub-Acquisitions?

Sometimes one deal just doesn’t cut it.

Sub-acquisitions made up nearly a third of all transactions this year, more than twice the amount in 2020, according to the latest DeVoe & Company report. Experts said the rise of sub-acquisitions, which occur when a newly acquired firm begins pursuing acquisitions of its own, are being fueled in large part by the rise of private equity investing. PE-backed RIAs make up just 3.7% of firms but control 25% of industry assets and are more likely to sub-acquire. As deals hit record highs, the trend could have impacts for both firms and for their subsidiaries.

“A lot of sub-acquisition strategies are what’s driving that difference,” said Michael Mangan, CEO of AdvizorPro. “It’s not just new RIAs being backed by PEs. It’s the ones that are being rolled up … falling under an existing platform.”

Putting the ‘Acquire’ In ‘Sub-Acquire’

One reason behind the rise is acquirers like Focus Financial Partners, which began consolidating its subsidiaries following a private equity investment and whose partner hubs make up the bulk of its business. Three Focus hubs alone — Colony Group, Kovitz and Buckingham — were responsible for 41 sub-acquisitions, per the DeVoe data. Carson Group, another serial acquirer, began as a minority investor in firms that were new to the industry and wanted to sub-acquire, said SVP of M&A Michael Belluomini. Around 2021, however, the firm began engaging in more equity swaps, where Carson takes, for example, a 25% stake in an RIA in exchange for a piece of Carson’s upside. “Rather than put all their chips on themselves, [advisors] wanted to diversify their holdings,” Belluomini said. “It was about making a bet that the mothership … was going to grow faster than their individual firms.”

And things show no signs of slowing. According to DeVoe:

• 75 sub-acquisitions have occurred year to date, matching 2024’s full-year record with a quarter of the year left.
• Firms backed by Wealth Partners Capital Group, which stakes acquisitive RIAs, were responsible for 31 sub-acquisitions this year.

Minority Report. Minority deals, meanwhile, accounted for 14% of all transactions this year — up from just 8% in 2023. It’s a misconception, however, that buyers offering minority structures are interested in getting involved operationally, said Allen Darby, CEO of Alaris Acquisitions. “They’re financiers, not partners,” he said. “Their play is to fund growth, ride the upside, and cash out in the next recap or portfolio sale.”

Then there are demographics: Advisors nearing retirement age, who make up nearly 40% of the industry, might take on a minority investment to double or triple their assets by the time they exit. The main motivation for many, though, remains a desire for some degree of independence, said Stephen Caruso, associate director of wealth management at Cerulli.

“[RIAs] don’t want to be entirely acquired and absorbed into a new entity,” Caruso said. “What minority investing platforms offer is the ability to tap into not only a capital flow or access to funding, but also a supportive investor.”