HighTower growth strategy shows no fear of buying high

The $71 billion RIA consolidator acquires its fourth $1-billion-plus firm this year

Oct 29, 2019 @ 2:12 pm

By Jeff Benjamin

Chicago-based HighTower continues to live up to its reputation as a hungry acquirer of larger registered investment advisers.

In the latest example of its private-equity-backed growth strategy, HighTower announced the acquisition of Schultz Collins, a $1 billion advisory group with offices in San Francisco, Washington and Towson, Md.

The deal marks the fourth $1 billion-plus deal this year for HighTower, which now oversees $71 billion in total client assets.

According to Bob Oros, who took over as HighTower's chief executive in January, the firm is set for more of the same, but smaller-size RIAs are also in the company's acquisition sights.

"We're open-minded to the entire size spectrum," he said.

Mr. Oros admitted that the string of larger deals shows "a little bit of selection bias, because those firms hire bankers to help them."

But since Mr. Oros took over, HighTower has started building up an internal merger-and acquisitions team to work with outside bankers and help smaller RIAs find their way to the negotiating table.

"I think as time goes on, you'll see us talking about smaller deals," he said. "We'll start doing those on more consistent basis, as well as sub-acquisitions."

[Recommended video: What is causing the fever for RIA deals?]

HighTower's growth strategy has been well-telegraphed under Mr. Oros, who took over the CEO role from HighTower founder Elliot Weissbluth, who is now chairman of the business he created in 2007, initially to attract breakaway brokers.

In February, HighTower acquired Green Square Wealth Management, a $2.6 billion Memphis, Tenn.-based RIA. That was followed in April by the purchase of Beverly Hills, Calif.-based LourdMurray, which added another $4.8 billion in assets.

And in August, HighTower acquired Lexington Wealth Management, a Lexington, Mass.-based RIA with $1 billion under management.

"This is HighTower 2.0 under Bob Oros and [private-equity firm] Thomas H. Lee," said Mindy Diamond, president of the recruiting firm Diamond Consultants.

"This is exactly the kind of strategy I think you're going to see a lot more of at HighTower," Ms. Diamond said. "It's about being acquisitive as a strategic partner and as a capital partner."

The most recent report from DeVoe & Co. shows that consolidation in the RIA space is occurring at a record pace, with the 101 deals completed during the first nine months of 2019 already eclipsing the 100 deals completed during all of 2018.

David DeVoe, managing director at DeVoe & Co., said the HighTower acquisitions underscore the power and value of scale that the RIA space continues to pursue.

"HighTower continues to maintain momentum and demonstrate that the platform they build is really resonating with RIAs," Mr. DeVoe added. "And advisers in today's marketplace are curious about how they can partner with large firms to gain scale."

As Ms. Diamond explained, scale is often relative.

"What it takes to get to $1 billion under management is not the same as what it takes to get to $2 billion or more," she said. "What a billion-dollar firm needs is a strategy partner as well as a capital partner."

In addition to the pursuit of scale, Mr. Oros acknowledges that RIAs in general are also recognizing that the markets have reached a key juncture, with valuations high and the immediate outlook seeming less stable.

"There's no doubt the pace of consolidation is faster than I've ever seen it," he said. "Generation one is getting older and thinking about what's next. It's highly competitive out there, and valuations are pretty full."

Add to that the upcoming election and growing concerns over a looming bear market. "It's all contributing to the fact that now is a good time to sell," Mr. Oros said.

Being on the buying end of a market that is selling high doesn't necessarily deter Mr. Oros.

"As a buyer, it forces us to be very focused on quality," he said. "It doesn't bother me to pay for a great asset."

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