Less than two years after raising $85 million in an initial public offering, Envestnet Inc. is on an acquisition roll. The Chicago-based technology firm said Thursday it will pay $54 million in cash for Tamarac, a Seattle-based software company that makes portfolio management, rebalancing and performance reporting systems for RIAs. Tamarac has reportedly seen sharp revenue growth in recent years.
The purchase comes one week after Envestnet said it would buy Prima Capital Holding, a provider of investment manager due diligence and other services to wealth managers. In December Envestnet closed on its purchase of FundQuest, a turnkey asset management program services provider.
Tamarac is by far the biggest deal. In addition to getting access to Tamarac’s suites of software for rebalancing, portfolio management and client relationship management, Envestnet can draw on Tamarac’s clients—500 RIA firms with 2,700 advisors and assets under management of $250 billion, according to Tamarac Chief Executive Stuart DePina. Fifty of the firms have a minimum AUM of $1 billion, he said, although some advisor clients manage as little as $10 million.
“I’ve had probably 50 phone calls today” from advisor clients, DePina said. “Most of our clients came on board when we were really small. So I think at some level they understood that at some point in time, this was going to happen.” One common reaction: “Make sure you guys continue to support us the way you support us,” DePina said. “That’s the commitment we have to them, and that’s the commitment that we got from Envestnet with this.”
Tamarac was founded in 2000. DePina said the privately-held firm has seen 50 percent year-over-year revenue growth annually over the last five years (revenue figures were not released.) The company has grown from eight employees in 2007 and now employees 100. Under Envestnet, it will be operated as a separate division with DePina as group president. He said Envestnet, which is publicly owned, is in a good position to raise funds to help the software company grow further.
“They’ve built a really great technology platform that solves a critical problem for RIAs,” Envestment President Bill Crager said. That problem is rebalancing multiple client portfolios, a time-consuming task. “They want to integrate with other advisors,” Crager said. “The advisors are getting more and more complex in what they are doing. The need to have these types of solutions is not optional any more. It’s kind of essential.”
Bill Winterberg, principal of FPPad.com, a technology consulting firm, described the deal as complementary to Envestnet’s products and services. “Had they wanted to compete and replicate what Tamarac is doing, it would have taken considerable investment in time to roll that out,” he said. “With Tamarac, they’re less product-oriented and more about scale and efficiency inside an advisor’s offices.”
Aite Group analyst Alois Pirker said Envestnet is looking for a larger share of the RIA market with its latest acquisition. “Tamarac has been laser-sharp focused on the investment community in the RIA space. That certainly opens up for Envestnet a nice market share in the RIA space, an untapped market share,” he said.
The deal is due to close by mid-2012. One investor who won’t be involved in the deal is Mark Spangler, Tamarac’s former board chairman. His Spangler Group had several million invested in the firm, DePina said. Spangler left the board a year ago after news reports that he was under investigation by the SEC and the FBI. DePina said Spangler has since sold his stake in Tamarac.