Envestnet Inc. has been the reported target of a potential sale ever since the tragic death of its well-loved co-founder and CEO Jud Bergman more than two years ago.
The wealthtech tea leaves last week had the turnkey asset management platform exploring its strategic options after receiving interest from a potential PE buyer. The Chicago-based company has recently been approached by at least one private equity firm, according to Bloomberg.
The speculation quickly escalated in a follow-up story with Envestnet actually being shopped around to private equity firms in an auction-like dog and pony show, according to not one, not two, but five people who spoke with Barron’s.
An Envestnet spokesperson declined to comment for this story.
Investment bankers who advise on these potential sales often leak the details to news outlets to chum the waters and attract attention from as many potential buyers as possible. And where there's bait, the big fish usually aren't far behind.
PE has recently been enamored of wealth management assets because of the stable fees charged on assets under management or through subscription models. Like many traditional advisory firms, digital upstarts can also generate reliable and recurring revenue, and that can be eye-catching to buyers, who can then value the company on concrete metrics. Research from Echelon Partners counted 307 deals in 2021, an increase of nearly 50% over the prior year.
An Envestnet sale would dwarf most fintech deals to date.
“The organization is at a crossroads,” said William Trout, senior analyst at the consulting firm Javelin Strategy & Research. “Perhaps they haven't fully regained the mojo they had when the previous regime was in place. The headwinds have become so significant that they may want to reevaluate their strategic options.”
The company’s board of directors could also make for an interesting wrinkle in the saga. Chairman James Fox is a former exec at Brinker Capital, the investment management company that merged with Orion Advisor Solutions in 2020 to forge a $40 billion turnkey asset management platform.
Another member, Gayle Crowell, served as an operational consultant for the private equity firm, Warburg Pincus, which took a majority stake in Kestra in 2019 and more recently invested in the advisory technology platform Facet Wealth Inc.
“It’s an interesting cast of characters,” Trout said.
Keep in mind, the rumor mills have missed the Envestnet mark before. Around this time last year, numerous reports predicted a potential sale of the company's data analytics arm, Envestnet Yodlee, or a sale of the entire firm itself. The blockbuster, but now-defunct, $5.3 billion merger of Visa Inc. with Plaid Inc., another data aggregator in the financial services sector, stoked the flames last February.
Fast forward to today and Yodlee sounds like an integral part of Envestnet’s future. The company has plans to monetize the data analytics it gathers through Yodlee and it's projected to become inseparable from Envestnet's core businesses, said president Stuart DePina. More than a third of the advisers using the platform are also tapping into the data.
Admittedly, integrating Yodlee, Tamarac and numerous other business lines and projects at the expansive TAMP has proved more arduous than executives initially bargained.
“It would be disingenuous of me to say that it's one product today, because it's not,” DePina said during the May earnings call. “This is early stages, and we haven't made a lot of progress yet, but we're starting to.”
While the rumors are simply hearsay, for now, they're still good for business. Envestnet’s stock rose 8.4% to $71.56 on Feb. 22 after the original story was published, giving the company a market value of about $3.9 billion. More than 108,000 advisers, including over 500 of the largest registered investment advisers, use the firm's tech to help them manage investments for clients.
“To what degree Envestnet feels exposed to the competitors and the current market conditions is hard to say,” Trout said. “Frankly, going private would allow them to raise more capital and a bit more breathing room.”
If a sale actually happens, bringing Envestnet, which has been a publicly traded company since 2010, back under private ownership, rest assured it’s going to be an earth-shaking deal, and one that's going to take very deep pockets.
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