Financial Engines recently announced it was being taken private by the respected private equity firm Hellman & Friedman for $3 billion in cash, a 30% premium over the pre-announcement closing price.
Financial Engines will merge with Edelman Financial, the $21 billion national RIA that H&F acquired three years ago for what was then reported as a purchase price of over $850 million. I've written in the past about the rise of the mega firms. Clearly, the combined company is one of the wealth management firms likely to become a nationally dominant firm.
This blockbuster deal is a very exciting development for our industry. H&F has committed almost $4 billion in capital to the wealth management industry. This is particularly interesting when one considers recent reports suggesting that valuations on certain robos has been on the decline.
PE firms don't take big bets, they make reasoned long-term investments. So what are the big trends that would make this acquisition a good investment over the long term? How might those trends impact the wealth management industry?
Financial Engines already has a direct relationship with more than $169 billion in plan assets, a relationship that was not being optimized successfully. In order for the new firm to deliver an attractive return, it needs to provide services to the billions of plan assets that roll out of its plans annually.
This will mean a new competitor to the custodians and mutual fund companies all angling to pick up the billions of dollars of retirement assets available once employees roll out of the corporate plan. It will also mean heightened competition for independent wealth managers who were once accustomed to being first in line to capture IRA rollovers. Is it any wonder it's getting harder for independent firms to capture new rollover assets?
If you want your advisory firm to grow exponentially into the next decade, I believe this merger lays the blueprint for what it will take: a willingness to commit boldly to expansion and growth, the integrated use of evolving technology throughout your firm, and a clearly articulated target market you can access and serve profitably.
I tip my hat to Ric and the team at H&F. If they can coordinate all of the components in the right way, they have the opportunity to build a phenomenal institution. Any independent firm can change its future, but how many are brave enough to change the status quo in order to get to the next level?