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Hellman & Friedman Acquires Financial Engines for $3.02 Billion

The private equity firm plans to combine the robo investor for retirement plans with Edelman Financial Services.

Hellman & Friedman has agreed to buy Financial Engines, the publicly traded, largest registered investment advisor in the U.S., for $3.02 billion and plans to merge it with its previously acquired Edelman Financial Services, the mass-affluent facing RIA giant founded by Ric Edelman. 

At $45 per share, the all-cash deal closed at a 32 percent premium above Financial Engines’ closing share price of $33.95 on April 27. The sale price was 41 percent above the trailing 90-day volume-weighted average stock price.

In a statement about the deal on Monday, Hellman & Friedman said it intends to merge Financial Engines, which has $169 billion in client assets under management, with Edelman Financial Services which manages $21.7 billion. 

“We see tremendous alignment and commitment to our vision, and we believe the [Hellman & Friedman] partnership and the combination with Edelman is the best path for us to achieve our long-term strategic objectives, while providing significant and immediate upside to our stockholders, employees and clients,” said Financial Engines President and CEO Larry Raffone.

The move brings Edelman, a retail-facing advisory firm which grew via radio ads and Ric Edelman's commitment to bringing financial planning to middle-class Americans, to the 401(k) industry, where it previously has not been a player, and underscores the way digital advisory services are transforming the wealth management business. It also brings Financial Engines, which has moved into the retail financial advisory industry since its acquisition of The Mutual Fund Store in 2016, with an additional 160 Edelman advisors. 

“Two years ago, when they acquired The Mutual Fund Store, they said ‘we have the robo, we know investments, now we can go outside the 401(k) space,” said Michael Baron, vice president of Baron Funds, which owns over 3 percent of Financial Engines stock.  “The 401(k) market is a nice business, but it’s a small segment of the overall market.” Cross-selling retail advice to plan participants, and giving retirement plan advice to retail clients, is a way to continue growing, without having to share revenue with the record keepers in the plan sponsor space, he said.

“Two years ago they went out and bought the advisors,” he said. “Now you see advisors going out and buying the technology. They both feed off of each other.” In addition to its own network of advisors, “Financial Engines now has 160 more advisors to go out and recruit and gain assets.”

Analysts lauded the sale as a good outcome for Financial Engines’ shareholders. Peter Heckmann, a senior research analyst at D.A. Davidson said in a note Monday that the $45 per share offer was 22 times his firm’s 2019 adjusted earnings per share forecast but “there may be other strategic buyers that could be willing to consider the possibility of a higher bid.”

Surinder Thind, an equity research analyst at the Jeffries Group, said the deal was probably a good one for shareholders, at least in the near-term. It also takes Financial Engines out of public view as Hellman & Friedman invests in the business and adds human advisors. “These guys have arguably the best tech in the marketplace and the synergies work both ways,” he said.

Larry Raffone will be the president, CEO and a board member of the combined company.

Hellman & Friedman said it will continue to invest in Financial Engines to “accelerate its growth,” Allen Thorpe, a partner at the firm, said in a statement Thursday. Neither Thorpe nor any others at Hellman & Friedman could be reached to expand on the continued investment in Financial Engines.

The two firms serve similar clientele in slightly different ways. Financial Engines has leveraged financial planning technology that is now used by more than 750 of America’s leading employers and largest recordkeepers, as well as its own network of advisors. Over 10 million employees with more than $1 trillion in assets have access to Financial Engines’ software, which has helped it mass $169 billion in AUM.

Over the last 30 years, Edelman Financial Services and its network of advisors focused on helping investors save for retirement has garnered $21.7 billion for more than 35,000 clients in the U.S. Founder and Chairman Ric Edelman will be a board member and the chairman of Financial and Investor Education of the combined company.

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