Page 46 - Investment Advisor October 2022

BROKER-DEALER BEAT

By Jeff Berman

UBS-Wealthfront Deal Has Been Canceled

The $1.4 billion deal was “doomed from the get-go,” Nexus Strategy CEO
Tim Welsh says.

he decision by UBS Group AG wirehouses) before UBS agreed to buy
and Wealthfront to terminate them,” he wrote. “And while the head-
Tthe planned acquisition of the lines proclaimed they paid $1.4 billion,
robo-advisor by the bank, announced it was actually only $700 million in cash
Sept. 2, came as little surprise to at least with another $700 million in incentives
some tech and financial services indus- only if revenue objectives were met.”
try experts. Some of them had ques- That, however, still meant “UBS was
tioned the logic of the $1.4 billion deal paying around 10X revenue, which is
after it was announced in January. NUTS considering that SoFi paid 10X
Although the deal was scrapped, UBS for Galileo, Stripe’s last funding round
will buy a $69.7 million note that is con- was at 10X and Intuit snagged Credit
vertible into Wealthfront shares. “UBS Karma for only 7X,” Iskowitz noted.
remains committed to its growth plans He explained: “When you acquire or Additionally, “Wealthfront has no dif-
in the U.S. and will continue the build- take a majority stake in a business at a ferentiating technology, no special sauce
out of its digital wealth management certain valuation, you own that stake or moat protecting their revenue (except
offering,” it said in a statement. outright [and] it’s the purest, most accu- inertia) and only 400K clients, which is
“This deal was doomed from the rate form of valuation there is.” a drop in the bucket for B2C providers,”
get-go,” Tim Welsh, CEO, founder Before the deal was announced, Iskowitz said, pointing out mobile apps
and president of wealth management “somebody at UBS built a model that such as Acorns, Stash and MoneyLion
consulting firm Nexus Strategy, said. said they could generate growth in cash had over 4 million clients each.
“This was always an odd deal,” Welsh flows >$1.4B over time by owning that Andy Rachleff, Wealthfront executive
added, noting it “seemed to be a forced asset,” he tweeted, noting: “UBS truly chairman (and previously its CEO and
sale” without “any real strategy or long thought the asset was worth that much president), had been pivoting “like crazy
term synergies.” back then.” to try to reach scale including high-inter-
“Basically, the two companies were But times have changed. “We may est saving accounts, retail banking and
diametrically opposed, so [it’s] not a sur- never know what happened or what cryptocurrency [but] none of these got
prise it didn’t get consummated,” Welsh leverage UBS had to get out of the deal, much traction,” according to Iskowitz.
said. “Also, the deal was at the peak of but now they do not believe the asset is Meanwhile, “Rachleff was trash-
the market, so UBS was dealing with worth $1.4B,” Klein said. He still, howev- ing the banking industry, saying that
buyers’ remorse and the ultimate under- er, wondered why UBS is investing $70 they were going to lose 50 million cus-
standing that they way overpaid.” million at the same $1.4 billion valuation. tomers over the next decade, which
Craig Iskowitz, CEO and founder of Wealthfront was targeting,” Iskowitz
BUYING A BUSINESS VS. INVESTING Ezra Group, called Klein’s analysis of said. “Then he up and sells his company
IN A BUSINESS the UBS-Wealthfront breakup “spot on,” to one of the biggest banks in the world.
The collapse of the deal “speaks vol- tweeting in response: “Bailing on a $1.4B The promise of a big payday can make
umes about something many people purchase for just $70mm in convertible people do or say almost anything, no
don’t understand — the difference notes is the deal of the century” for UBS. matter how crazy.”
between buying a business vs. invest- “There were early signs this wasn’t a Iskowitz added: “Now that this deal
ing in a business at a certain valuation,” great deal,” Iskowitz said in a LinkedIn has been thrown on the dung heap
Aaron Klein, CEO and co-founder of post on Sept. 5. of fintech history, hopefully someone
fintech firm Riskalyze, said in a tweet For example, “Wealthfront had been involved will spill the beans on exactly
on Sept. 5. “Why would UBS be willing shopped to a number of other poten- what went on behind the scenes. It’s got
to do one but not the other?” tial suitors (including RBC and other to be a wild story.”

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