Financial Engines to be purchased for $3.02 billion, combined with Edelman

The $3.02 billion acquisition of Financial Engines announced Monday is likely to spur more interest on the part of private equity to bring together long-standing advice firms with robo advisers, experts said.

The acquirer, private equity shop Hellman & Friedman, said Monday it would combine Financial Engines with Edelman Financial Services, a registered investment adviser in which it holds a majority share.

Edelman is one of the largest firms in the traditional RIA space with $21.7 billion in AUM and 35,000 clients nationwide.

Financial Engines manages more than $169 billion in assets according to its most recent form ADV. Launched in 1996, the company uses a combination of proprietary technology and a network of human advisers to provide managed-account 401(k) plans.

The combined company will be the largest independent RIA in the country.

The deal is the largest buyout in the financial services sector so far in 2018, according to Elizabeth Lim, a senior analyst at Mergermarket. Spending more than $3 billion proves how seriously the industry is taking digitization and fintech, she said,.

Ms. Lim believes we are likely to see more private equity interest in the space before interest rates rise again. “[The acquisition] shows you that private equity is really starting to pay attention to some of the emerging technologies, and they are making a big bet on it,” she said. “They are hoping to leverage their large pool of money to bring together long-standing advice firms with robo-technology.”

“The Financial Engines sale demonstrates the value of digital advice — particularly in the defined contribution space,” said Rob Foregger, co-founder, NextCapital, in a statement.

“More and more financial institutions are seeking to deliver advice in an integrated fashion across the retirement life-cycles, the accumulator inside the 401k, the job changer with the IRA rollover and the retiree transitioning to a fixed retirement income. This is a $14 trillion market, and Financial Engines is the leader. There are very few remaining independent players in the marketplace that can enable digital advice in the large enterprise market. This will likely accelerate forward looking M&A in the Retirement WealthTech space.”

“This is an exciting transaction – a mega-deal in the RIA space,” said David DeVoe, managing partner of DeVoe & Co.

Considering both firms have a track record of successful marketing and leveraging technology, Mr. DeVoe said the company can use their combined assets to accelerate growth.

“This combination enhances the combined company’s ability to win in the mass affluent space,” he said.

Financial Engines CEO Larry Raffone will lead the combined company. In a statement, Mr. Raffone said the merger with Edelman is “the best path for us to achieve our long-term strategic objectives, while providing significant and immediate upside to our stockholders.”

Shares of Financial Engines jumped more than 32% following news of the acquisition.

Edelman founder Ric Edelman will serve as chairman of financial and investor education of the combined company.

The companies declines to provide additional comment.

The transaction was approved unanimously by Financial Engines’ board of directors and is expected to close in the third quarter of 2018.