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Activist Investor Ancora Pressures Blucora to Sell TaxAct Unit

In the wake of Blucora’s second quarter earnings results last week, RIA and shareholder Ancora is calling for the company to sell off its TaxAct unit.

Ancora Holdings, an investment advisory firm and Blucora shareholder that waged a public proxy battle with the company for board seats last spring, sent a letter to the board of directors this week, putting more pressure on Blucora to sell its online tax preparation unit, TaxAct.

The letter comes just days after Blucora, the parent company of tax-centric broker/dealer Avantax, reported its second quarter earnings results. The firm said its GAAP net income was $31.6 million, or 64 cents a share, down 36% year over year, although total revenue was up 58% from a year ago to $254.3 million. And the firm’s advisor head count declined from 3,718 in the first quarter to 3,606 by the end of the second quarter. The company attributed 77% of its advisor attrition to no-producers leaving the firm, which it defines as those with less than $50,000 in rolling gross production.

The company’s stock has declined nearly 6% since the earnings announcement.

“Ancora continues to believe that there is a tremendous amount of value trapped within Blucora’s underperforming stock,” Ancora CEO Frederick DiSanto wrote in the letter. “In particular, we remain convinced that Avantax is a high-quality wealth management business with a strong base of talented financial professionals.

“Given that this concerning drop in market value comes on the heels of the company’s benign financial results and its recent Investor Day, we are forced to conclude that the market is simply unenthused by Blucora’s strategy. It appears to us that investors are still unconvinced that pairing a wealth management business and a tax software business will yield any viable synergies or underpin significant value creation.”

Ancora, which owns about 3.4% of Blucora's shares, also argued that the company’s valuation multiple was 30%-35% below the peer group median. Ancora also again criticized Blucora’s corporate overhead, which, it argues, represents approximately $6-$7 per share in value reduction.

“With tax season behind us, now is an opportune time to explore strategic alternatives for TaxAct,” DiSanto writes. “Capital obtained from a sale of TaxAct could be used to pay down debt, pursue targeted stock repurchases and advance other strategic priorities, such as investing in Avantax’s growth.”

A spokesperson for Blucora did not respond to a request for comment by press time.

In April, private equity firm Golden Gate Capital submitted a proposal to acquire Avantax, according to a Bloomberg report.

During a June investor day, Blucora CEO and President Christopher Walters said he expected synergies between the wealth management business and TaxAct software business to deliver $2 billion in net new assets by 2024. Walters also laid out plans to bring those two businesses together.

Ancora launched a public proxy battle against Blucora management in mid-March of this year, arguing the current management team was failing to find promised synergies between Avantax, Blucora's strategic roll-up of tax-focused broker/dealers, including HD Vest and 1st Global, and Blucora's legacy professional tax software business, depressing the stock price. 

The mismanagement was also alienating Avantax's advisors, Ancora said, sending many fleeing for other broker/dealers.

In interviews with WealthManagement.comadvisors who recently left Avantax said service levels suffered, payouts declined and fees rose after Blucora acquired and combined their broker/dealers.

The proxy battle had seen ongoing blows coming from both sides. But in the end, Blucora shareholders voted to reelect all 10 of the company’s existing directors by a wide margin.

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