Wealthtech deal activity was strong in 2024, and is likely to stay that way in 2025, particularly in the venture capital and private equity space, with some M&A possible between similar firms.
ECHELON Partners noted that the wealthtech industry saw a 32.7% increase in deal volume compared to 2023, driven by the need to provide robust holistic technology solutions to both advisors and end clients. The report also noted that total annual wealth management M&A announced transactions reached a new record, keeping the five-year compounded annual growth rate at 12.3% from 2020 to 2024.
Industry experts are generally optimistic in their outlook for deal transactions in wealthtech for 2025. However, it remains to be seen if wealthtech can repeat the same strong growth as last year. The industry is likely to experience some of the same challenges as the broader tech space, such as the cooling effect of higher interest rates that are likely to remain elevated for longer. That could mean investors are picker about what they want to buy, but the right firms could benefit from deal activity.
Wealthtech Remains Attractive To Private Capital
The most promising area for wealthtech deals is in the venture capital and private equity space, say industry experts.
Sid Yenamandra, Founder and CEO of Surge Ventures, says he expects in 2025 that VCs and private equity funds are likely to increase investments in companies with scalable, tech-driven solutions.
Doug Fritz, Founder and Executive Chairman of F2 Strategy, and Adrian Johnstone, CEO of Practifi, agree that private capital remains attracted to the wealthtech space, with several PE funds stating their interest.
“The wealthtech market is hot,” Fritz says.
Johnstone notes there is strong interest in AI-based systems, and he expects to see several deals close in the first half of the year. “We should expect to see a continuation of seed stage investing as firms look for the ‘unicorn’ opportunity,” he adds.
A stable regulatory environment and targeted incentives could encourage more private capital investment into the wealthtech space. That “could further boost capital deployment into transformative platforms,” Yenamandra says.
M&A Market Is Shifting
Yenamandra suggests that the new White House administration, with its friendly business environment and focus on innovation-friendly policies, may drive some M&A activity in 2025. He predicts M&A activity may concentrate on strategic combinations to drive scale, address regulatory demands, and capitalize on emerging opportunities in AI and digital transformation.
Johnstone says given the “explosion” of new wealthtech offerings over the past few years, it’s reasonable to expect some consolidation this year. M&A activity may be driven by end-user demand, he adds. As RIAs look to simplify their tech stacks and cut overall spending, that could lead to providers of narrow-point solutions being acquired by a more core system firm, such as CRM or planning systems, to secure their future.
M&A activity is likely to occur more between complementary firms rolling up, the experts say. “Firms will look to diversify their offerings while reinforcing core capabilities to align with evolving market needs and regulatory priorities,” Yenamandra says.
Fritz suggested firms in rebalancing, CRM and a few other capability areas are more likely to take this path. However, F2 Strategy doesn’t believe this will be a major theme for 2025.
Sellers of core platforms with profitable balance sheets should command strong valuations in 2025, and those with clear growth trajectories and innovative offerings will attract premium valuations, Yenamandra and Johnstone suggest. However, they predict 2025’s market may be turning to favor buyers.
In the current environment, early-stage point solutions may struggle to achieve the numbers they’re hoping for, Johnstone believes. “Buyers will look for opportunities with proven results that can be used as hubs for further acquisitions. Sellers should focus on operating metrics, remembering that ‘growth at any cost’ is no longer desirable.”
Not everyone expects significant M&A activity in 2025. Fritz suggests most capital activity will focus on private capital Series A or Series B investing, rather than M&A, as the successful ventures that have sprung up in the past 10 years continue to attract funding. He’s also not sure that point solutions lend themselves to being acquired and integrated into a larger firm.
There are other factors affecting M&A as well. As private capital continues to invest in early-stage funding, the evaluations and expectations of these funders “should drive valuations to a point where it is not attractive for increased M&A. In addition, interest rates are going to be working against more levered deals,” Fritz says.
One avenue that isn’t likely to be a pathway to growth for wealthtech firms is initial public offerings, which echoes the broader lackluster IPO market of the past few years. Johnstone gives examples of Envestnet’s delisting and other previously touted IPOs seemingly on hold as evidence to expect few wealthtech IPOs.
Fritz says there is little need for smaller wealthtech firms to prepare for an IPO since there is plenty of money in private markets to tap.
“There are some larger firms that have been through private equity that may seek public market capital, but we do not believe this will be a major theme for 2025,” he says.
How The Broader Tech Space May Affect Wealthtech
The broader tech sector was led by strength in semiconductor companies and the outlook for AI. Challenges to that outlook could reverberate across the industry, such as when tech stocks sold off in late January following news of a cheaper, open-source version of AI released by a Chinese company.
While the private market space with specialized teams is still attracted to wealthtech, the industry is not immune to what’s happening in the overall tech investment ecosystem, Johnstone says.
“Therefore (it is) subject to the same cyclical investment pressures,” he adds.
With high valuations for many tech companies, buyers could be choosy. “Larger institutions that are holding onto cash or investing in internal R&D may not be seeking wealthtech firms to bolt into their core offering,” Fritz says. “We also see the cooling effect of higher interest rates on levered transactions, which will continue to temp down on M&A’s growth.”
Valuations and interest rates aside, Yenamandra says the broader tech space has positive momentum on its side, driven by innovation and government support. He expects this will trickle into wealthtech.
“A renewed focus on modernization, efficiency, and compliance will align the sector with broader tech trends, creating opportunities for growth and consolidation,” he says.
Julius Buchanan, Editor in Chief at Wealth Solutions Report, can be reached at julius.buchanan@wealthsolutionsreport.com.
