Goldman buys United Capital in ‘huge validation’ for RIA business
The once upstart RIA business just raised its game — big time.
Following increasingly larger investments by major private equity firms and last year’s successful Focus Financial Partners’ IPO, the industry can now claim the ultimate establishment endorsement: the sale of one of its pioneer aggregators, United Capital, to one of Wall Street’s most storied firms, Goldman Sachs.
Goldman is buying United for $750 million in cash, the company announced today. United has approximately $25 billion in AUM, $230 million in revenue and close to 100 offices around the country. It also owns the FinLife CX digital platform and financial planning software offering. The transaction is expected to close in the third quarter, subject to regulatory approvals.
Financial Planning reported in January that United CEO and founder Joe Duran began the sales process that month by hiring New York investment banker Moelis & Company and reported in April that Goldman had emerged as one of the final bidders.
Acquiring United will help Goldman accelerate its "long-term strategy to offer clients solutions across the wealth spectrum" by "broadening [the bank's] reach," Goldman CEO David Solomon said in a statement. Duran "will join" Goldman as part of the transaction, the company said in its announcement of the deal.
“This is a huge validation for the RIA industry,” says Karl Heckenberg, CEO of Fiduciary Network, another large aggregator, which has combined assets of more than $40 million. “It’s very exciting because you have a very respected firm, that’s not in private equity, who sees value in the space coming in with a long-term strategy.”
"This deal is important because United is being acquired by a prominent strategic buyer," says industry analyst Chip Roame.
Industry analyst Chip Roame agrees.
“This is a big deal,” says Roame, managing partner of Tiburon Strategic Partners. “Private equity firms have paid more for advisory firms and Focus went public for more money. But this deal is important because United, which at its core is an aggregator, is being acquired by a prominent strategic buyer, not a private equity buyer.”
United appears to be a good fit for Goldman, which has made no bones about wanting to expand further into the mass-affluent market under the leadership of Solomon, who became CEO of the bank last October.
On an earnings call in April, Solomon said Goldman intended to “pursue partnerships to engage the mass market.” CFO Stephen Scherr pointedly noted that “very large” market has $9 trillion “across more than 20 million U.S. households.”
Launched as on online bank just three years ago, Marcus now has $35 billion in deposits.
Goldman already owns Ayco, a Saratoga Springs, New York-based RIA which specializes in compensation packages and financial planning for Fortune 500 executives through HR departments. Ayco has around $35 billion in AUM, according to the firm’s SEC Form ADV.
Three years ago, the Wall Street giant launched Marcus by Goldman Sachs, its online bank offering loans and savings accounts to mass-affluent customers. Marcus now has $35 billion in deposits, the company says.
Goldman has also acquired several personal finance apps and is the bank behind Apple’s new credit card. And in March, Goldman snapped up Standard & Poor’s Investment Advisory Services, a $33 billion model portfolio business that is expected to incorporate Goldman funds in the customized portfolios it sells to the mass-affluent market.
Goldman is expected to cross-sell the firm's in-house products on United’s distribution platform.
Industry executives expect Goldman to cross-sell the firm's in-house products on United’s distribution platform.
“They will absolutely cross-sell, it’s just a matter of disclosure,” says one former Goldman executive now working in the RIA business. “It’s less a matter of if they will cross-sell than how transparent they will be.”
MarketCounsel CEO Brian Hamburger says cross-selling and transparency will become increasingly important issues in the RIA business.
“That’s the biggest part of the story,” Hamburger says, “There will be a great divide among RIAs.”
Some firms will take on investments with perceived conflicts of interest, while others will strive to maintain a conflict-free profile, he explains. “Clients will become far more interested in disclosure brochures so they can identify which firms are truly aligned with their interests,” according to Hamburger.
Industry analyst Jamie McLaughlin is more sanguine.
“Very, very few of United Capital’s predominantly mass-affluent clients would be eligible for Goldman products, particularly alternative investments,” McLaughlin says. “There’s very little product distribution opportunity for Goldman with this acquisition.”
Overall, Pirker believes United “fits beautifully” into Goldman’s mass-affluent plans.
As CEO Joe Duran prepares to meet potential investors, he faces one of the greatest sales pitches of his career.January 28
Outside investors are ready to exit, CEO Joe Duran tells Financial Planning.January 14
“United’s scalable advice service is made for growth,” Pirker says. “It’s just a matter of capital and Goldman Sachs has plenty of capital. The big question is cultural fit. Independent advisors are at the opposite end of the spectrum from Wall Street bankers.”
Was the deal worth it for Goldman?
A sale price of $750 million means United’s multiple would be near 18 times EBITDA, certainly on the high end of recent valuations.
But M&A observers have noted the scarcity value of an RIA with $25 billion in AUM. “There are not a lot of platforms of that size that come on the market,” investment banker Liz Nesvold said last month during the bidding war for United.
Industry executives have also noted that Goldman has the potential to recoup some of its purchase price — and lower its multiple — by bringing the assets United has with custodians in-house.
The sweep from United client accounts, now parked in cash, could be profitably lent out by Goldman, possibly resulting in substantial additional revenue for Goldman.
“The cash sweep is a nice foundation for further growth,” Pirker says.
Looking ahead, advisors may want to keep in mind what Goldman executives told shareholders after the Wall Street bank launched Marcus: "[We] are uniquely positioned to be a disrupter in consumer finance."