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July 11, 2024 at 11:32 AM
What You Need to Know
- The deal, for $3.5 billion in equity and $1.0 billion in debt, brings on BlackRock, Fidelity, Franklin Templeton, State Street and Reverence Capital as minority shareholders.
- The firm has pursued an aggressive acquisition strategy and must now contend with a number of mistakes it has made along the way, a consultant says.
- Assuming the deal closes, Bain can be expected to cut resources and make new investments into Envestnet.
Confirming reports that deal talks were going on between the two firms, Envestnet said Thursday that it had entered into an agreement to be bought by Bain Capital in a transaction valuing the company at $4.5 billion — $3.5 billion in equity and $1.0 billion in debt.
While the deal brings Envestnet new sources of capital and flexibility as a private entity, the firm still has much work to do: “They need to right the ship asap, pay down debt and realign for better investor outcomes for advisors, custodians and their clients,” said Seth Adam Stuart, a consultant in financial services with nearly 30 years of experience, in a post on LinkedIn Thursday.
As part of the transaction, BlackRock, Fidelity Investments, Franklin Templeton, State Street Global Advisors and Reverence Capital are taking minority stakes in the soon-to-be-private company.
The firm’s stock traded down Thursday 0.5% to $61.50 at 12:15 p.m. in New York. While the firm’s stock price is up about 24% in 2024, it is down 15.4% from five years ago.
“I expect significant changes [including] operational consolidation and efficiencies as well as cuts and increases in resources,” Stuart wrote in an earlier post Wednesday, which also emphasized his respect for the firm. The post is only viewable to Stuart’s direct connections, but he reviewed the highlights of his concerns in a discussion with ThinkAdvisor.
Among the many challenges facing Envestnet, his said, are those tied to its “strategic and tactical mistakes,” such as:
- Overexpanding, not consolidating and not integrating a “table d’hôte and or ala carte solution(s)”
- “Firing very capable long term employees and their significant and almost impossible to replace intellectual capital”
- Integrating its different businesses “with mixed results i.e., Yodlee, Tamarac, PMC, Redi2, Placemark, FDx, MoneyGuide, etc.”
- Focusing at times on “non-core functionality and nice to haves that did not lead to significantly better outcomes for clients”
- “Building exchanges instead of buying an alternative investment TAMP to go up market”
- “Failing to build a model exchange within the industry for SMAs”
- ”Taking on too much debt for financial wellness expansion inc. Yodlee, etc.”
- Moving into “the crowded custody space [with] limited resources and capabilities,” which could cost hundreds of millions of dollars or more.
Details of the Deal
Under the terms of the agreement, which has been unanimously approved by the Envestnet board of directors, Envestnet shareholders will receive $63.15 in cash for each share of common stock they own.
The transaction is expected to close in the fourth quarter, subject to customary closing conditions, including approval by Envestnet’s shareholders and regulators. Upon completion of the transaction, Envestnet’s common stock will no longer be publicly listed, and Envestnet will become a private company.
Bain also owns a 29% stake in Carson Group and 20% of CI Financial.
Ending the Speculation
Confirmation of the deal comes a few days after Reuters first reported the pending sale, a development that sparked much discussion in the financial services industry about Envestnet’s journey in recent years.
In short, some see a cautionary tale in Envestnet’s fast-paced M&A strategy — particularly since the death in October 2019 of Jud Bergman and his wife, Mary Miller-Bergman, in a car crash.
