Fisher Investments, a domestically registered investment adviser with more than $275 billion in total client assets, announced Sunday plans to sell minority stakes in the company to a subsidiary of Advent International and the Abu Dhabi Investment Authority in a sale that values the RIA at $12.75 billion.
While this may raise eyebrows in the wealth management industry, investment bankers active in the sector agree that the valuation is probably reasonable, given Fisher’s size, scale and organic growth rate.
Echelon Partners managing director Michael Wunderli said it’s hard to put an exact valuation on Fisher because he doesn’t know all of its financials. But using some middle-of-the-road assumptions based on the company’s assets under management, average fees, and the profit margins you’d reasonably expect from a company like Fisher, a rough valuation would be somewhere around $12 billion to $14 billion. That would require a 20x EBITDA, which is high but not out of the realm of acceptable value for RIAs, he said, especially given Fisher’s unique profile and marketing prowess.
“This is a company that has a well-known name, a strong brand and a long track record,” Wunderli said. “Those are a lot of elements that most asset managers don’t really have, or at least don’t have to this extent. That definitely drives the valuation.”
A majority acquisition by a strategic acquirer could fetch an even higher multiple, he said.
But all RIAs shouldn’t expect to be treated the same in the marketplace.
“Fisher is an outlier in itself,” said Harris Balch, managing director and head of investment banking at Dynasty Financial Partners. “It was a national asset management firm that had been in existence longer than most others, and ownership was primarily concentrated in one individual, Ken Balch. [Fisher]. “
Balch said Fisher’s valuation is fully justified given its size and scale, but he said the deal doesn’t set a new standard for RIA valuations more broadly.
“It’s very difficult to isolate any one particular deal and say that that particular deal is going to pin or pull valuations in a certain direction,” he said. “I think that’s something that emerging platforms looking to scale will undoubtedly aspire to, but I think it’s very difficult to find that rarefied independence at a company the size of Fisher and expect to go to market and get the exact same terms.”
“Premium pricing for RIAs continues, but there’s increased interest and care in making sure that premium pricing is being applied to firms with a history of good organic growth, and Fisher is clearly in that position,” said Brian Lauzon, managing director at Boston-based investment bank Colchester Partners.
Jon Langston, founder and CEO of Republic Capital Group, said the deal sets a new level of valuation for companies with similar growth and vision to Fisher’s, but he also argues that valuation depends on too many variables to apply Fisher’s multiple across the board.
But Langston said the deal was more significant as a turning point in the development of the independent asset management industry.
“I think this deal is a sign of things to come,” Langston said. “It will happen again, and I hope to be in the middle of it.”
Given that trajectory, Fisher could be three to four times larger in terms of assets under management, and Creative Planning could be five times larger, in the not-too-distant future, he said.
He thinks industry concerns about where future capital and the next deal will come from are misplaced. Fisher certainly attracted some private equity capital, but it also attracted sovereign wealth funds that were already invested in the U.S. asset management space. Last year, Canadian asset manager CI Financial sold a 20% stake in its U.S. asset management unit, now known as Corient, to a group of investors that also included the Abu Dhabi Investment Authority. The deal valued Corient at about $5.3 billion. Prior to that, CI had plans to take its U.S. asset management business public.
“Certainly, there are complexities and challenges surrounding the public markets for some of these companies right now, but the capital pool goes much further than private equity than people realize,” he said. “My view is that we’re fortunate in that the asset management model that we have in this industry is the best approach in the world.”
“Deals like this, especially of this size, signal increased interest from other pools of capital beyond traditional PE firms to gain exposure to the private wealth management industry and the macro trends driving its growth,” Lauzon said.
Balch said Dynasty has been getting calls in the past 12 months from investment firms it has never heard of before.
“They’re reading about what’s going on, or they have ancillary portfolio investments where there could be synergies in acquiring an asset management company, so they’re asking us to learn and gain knowledge.”
Wanderli said the deal would give Fisher both M&A expertise and capital to pursue its own investment opportunities, something that would be a new venture for Fisher, and that he sees the firm potentially becoming a strategic acquirer of large national RIAs.
“If Fisher starts acquiring large RIAs and gets all the resources to compete at a higher level, it’s going to create new competition for those large RIAs, not just in terms of acquiring them, but also in terms of recruiting advisors and being an attractive employer,” Wunderli said.
“I’d be surprised if there aren’t larger plans in the works for some inorganic growth, expansion into new businesses or even acquiring advisory assets.”
