Envestnet, which sells specialised software for wealth management, has agreed to get acquired by an American private equity group, and a consortium consisting of traditional asset managers.
The $4.5bn transaction shows how traditional asset management firms are looking to benefit from the increased longevity of savers and the $90tn transfer in wealth that will occur to younger clients with more technology-savvy skills over the next few years. Wall Street believes that independent Wealth Management will continue to grow as clients look to avoid high fees and conflicts with large financial groups.
The consortium includes Bain Capital and BlackRock. Franklin Templeton, Fidelity Investments and State Street Global Advisors also make up the group.
Envestnet tools are used to manage assets worth more than $6tn by over 100,000 financial advisors. It has one of the largest fee-based asset management platforms in the industry. This includes access to mutual funds, exchange traded fund and separately managed account options as well as research and asset allocation guidance.
State Street stated that it made the strategic investment in order to increase its asset management division’s “exposure to the growing independent wealth advisory markets and high net-worth markets”. BlackRock has invested in Envestnet since 2018, and sees it as a distribution channel for its wealth management services. People familiar with the terms say that each stake is slightly below 5 percent.
Bain, along with its partners including New York-based Reverence Capital private equity, plans to invest in the revamping of Envestnet’s technology. They will also use Envestnet’s scale to consolidate the wealth industry.
Marvin Larbi Yeboa, partner at Bain Capital said that the consortium will focus on “making additional investments in its differentiated offering”. Milton Berlinski, the head of Reverence Capital said that Envestnet was attractive to them because of their “scale and competitive advantage in an industry with strong fundamental tailwinds”.
Bain will finance this acquisition by borrowing about $2bn, according to people familiar with the situation. RBC, BMO and Goldman Sachs, as well as other large banks, will contribute to the financing. A group of private credit providers, including Ares, Blue Owl, and Benefit Street Partners (owned by Franklin Templeton), will provide a lead loan.
Envestnet announced in June that it would be working with four asset managers from the buyer group, who together manage about $18,3tn of assets. The goal was to offer personalised strategies and consultations for wealthy investors.
The takeover on Thursday comes in the midst of a frenzy of strategic ventures, takeovers and other activity within the wealth management sector.
According to someone briefed about its thinking, US private equity firm Advent International took a $3bn stake in Fisher Investments – one of the largest registered investment advisers in the world – last month. It bet that rising affluence, and wealth transfer to millennials would boost demand for wealth management.
Private equity groups like Blackstone, Hellman & Friedman, Apollo Global, and Clayton, Dubilier & Rice acquired large platforms that serve registered investment advisers.
According to a PwC study, there were 79 asset management and wealth management transactions announced in the first three months of 2024. This is the most since early 2023.
Asset managers are motivated to make deals by the need to invest in technology and counter a downward trend in fees that has been going on for a while.
Post Disclaimer