Recently, a young, well-heeled private equity veteran called to say he intends to raise funds to acquire TPAs. My first question was, “Why?” Not because there is anything wrong with TPAs, but roll-ups are hard, and there are more than a handful of competitors.

“I get a call or email a week from PE firms looking to invest or buy,” stated Bob Carroll, managing partner at Map Retirement, which was acquired by a PE group in 2024 after making seven acquisitions of their own. In addition to FuturePlan, owned by Ascensus, which started the recent wave of TPA acquisitions and Map Retirement, the list of national acquirers includes Strongpoint Partners, Definiti, Blue Ridge, Daybright, The Retirement Advantage, July Business Service and Prime Pension. A new one, Illium Holdings, led by Saagar Kulkarni, is raising capital.

So why the extreme interest by PE firms in TPAs and why now?

“Financial services in general are attractive to PE – the RIA and RPA markets are saturated with elevated valuations,” noted Danny Hest, CEO at Strongpoint. “Along with state mandates, there are favorable macro conditions, along with complex regulations that make TPAs attractive.”

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“PEs have lots of money on hand that they need to put to work,” commented Carroll. “TPAs are not high margins, but they have consistent cash flow like dividends.”

Advisors may seem sexier than TPAs with greater upside especially if they can leverage the convergence of wealth and retirement at work, but there is also greater downside risk – just ask Genstar and Aquiline which sold Sageview to Creative Planning at a discount because they could not leverage convergence and World Insurance which is reported to be selling the old Pensionmark perhaps because they could not leverage the synergies between their benefits and retirement groups.

PE firms are attractive to markets that are highly fragmented, owners that do not have a succession plan and opportunities to leverage technology to improve margins. Technology and AI will have a greater short-term effect on TPAs than almost any other sector of the DC market.

“TPAs are a rules-based business,” noted Bill Yoerger, CEO at Blue Ridge and former head of OneAmerica’s retirement division. TPAs that join a larger organization can recognize the benefits of capital, enhanced technology, broader product offering and a shared resources team that supports finance, human resources, marketing and an expanded technology team. The acquiring firm receives the benefits of local presence, strong client relationships, geographical expansion, specialized expertise and in some instances additional and unique expertise and product offering.”

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Kulkarni noted, “The firms that thrive will automate the repetitive work – census collection, testing, annual filings – so their experts can spend their time on plan design and client service.” He added, “Keeping up with tech and AI, along with cybersecurity, requires significant investment, which is moving at a faster pace than ever. In addition, TPA professionals are retiring in a highly constrained talent market.”

These acquirers are attracting high-level talent to run their groups, like Bob Carroll, who led retirement sales at John Hancock and MassMutual, Hest, who led a large division for Expedia, Yoerger, and Kulkarni.

More wealth advisors are encouraged by their broker-dealers to help clients as state mandates create more plans – TPAs are the perfect partners to help design and service these plans. “National BDS and record keepers want to align with national TPAs, especially those that are SOC 2 certified and can build API connections,” stated Carroll. “The downside of acquisitions for employees is there’s a lot of change,” according to Carroll. “Employees with knowledge, talent and relationships are the most important asset of any acquisition.”

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He stressed that Strongpoint is not a roll-up – in order not to lose plans, larger acquisitions retain their brand and key employees. “At Ilium, we have no interest in running another PE roll-up,” commented Kulkarni. “The relationships a TPA builds with sponsors and advisors over many years are what make it worth owning, and the fastest way to destroy that value is to cut the people who hold those relationships.”

Two-thirds (over 67%) of business and private equity roll-up strategies fail to create any real value for investors without integration, according to advisory group Kadenwood. Just ask United Retirement Plan Consultants, which ultimately sold to Ascensus for pennies on the dollar, and TRA is still looking for a buyer after more than a year.

TPAs play a critical role in helping advisors leverage convergence with their expertise in managing data, technology and AI, as well as knowing when a relevant participant event occurs. They also know which record keepers are really trying to partner and which are hypocrites.

Can independent TPAs compete with these larger groups? Carroll noted, “Smaller boutique firms with a unique niche can compete, but it will be harder for mid-level firms, which will have to go one way or the other.”

“The majority of record keepers have robust TPA offerings and many mandate that under a certain size, a TPA needs to be used,” Yoerger noted. “I did not think in my lifetime that Fidelity would offer a TPA-supported offering, but they offer one now as they realize the benefit of using TPAs on a select segment.”

In 2024, I wrote “Is the Report of the Death of TPAs Greatly Exaggerated?” But who would have thought that the TPA business would become sexy?