Blucora, the parent company of Avantax Wealth Management, the tax-focused independent broker/dealer created from the acquisitions of HD Vest and 1st Global, announced plans in January to acquire CPA-focused hybrid registered investment advisory HK Financial Services for $160 million. But in light of the current economic conditions, the two have adjusted the terms of the agreement, with Blucora buying the firm for $100 million and adding a financing contingency.
The transaction was expected to close by the end of the first quarter, but the new agreement also extends the closing window to Oct. 1, 2020. It also features the potential for performance-based earn-out payments over time, if asset targets from the original agreement are met.
HKFS, which uses ProEquities as its b/d, will operate as a third division of the company, in addition to Avantax and TaxAct, the company’s tax software.
“We believe that the amended transaction terms prioritize flexibility and balance sheet strength, while providing a path for Blucora to capture the valuable strategic and financial benefits of the transaction once it is closed,” Blucora said in a statement.
HKFS had $4.4 billion in client assets when the companies originally agreed upon the transaction; it now has $4.1 billion in assets and first quarter net inflows of $214 million. The new terms value the RIA at about 6.3 times 2020 EBITDA, including fully realized synergies.
“We continue to believe that the acquisition of HKFS will bring significant short and long-term strategic value to our advisors, end-customers and stockholders and given the current market environment we felt it was appropriate to undertake a detailed review of the transaction terms and timing,” said Chris Walters, president and CEO at Blucora. “At a time of dynamic change and uncertainty, we believe that the addition of HKFS to our business will allow us to deliver even more compelling solutions and choices to CPA firms, advisors and end-clients, thereby enabling us to serve a greater number of CPA firms and tax professionals, improve asset retention and add a fast-growing, high margin captive RIA platform to our business.”
In January, Blucora CEO John Clendening stepped down from his role, with senior executives saying at the time that the move would not affect the company’s acquisition of HKFS. The company announced just a few days later that Walters, who had been a member of the firm’s board since 2014, would take on the role of president and CEO immediately.