Many special purpose acquisition companies (SPACs), blank check companies that raise capital through an initial public offering to acquire or merge with an existing company, collapsed in 2022. But recent filings with the Securities and Exchange Commission indicate that one SPAC in the wealth management space is on track. Kingswood Acquisition Corp. (KWAC), the SPAC sponsored by the major shareholders in British wealth management firm Kingswood Group and a sister company to Kingswood U.S., appears to be on track as it filed its S-4 with the SEC late last month, giving investors a glimpse at the firm's revenues and profits.
Broker/dealer aggregator Wentworth Management Services previously announced an agreement to merge with Kingswood Acquisition Corp., a deal that would allow Wentworth, which owns four independent broker/dealers, to go public. The deal is expected to close sometime between now and mid-May 2023.
The two will merge under newly created Binah Capital Group, which will have over 1,900 advisors and $25 billion in assets. Binah is the name of what will be the publicly traded holding company, said Larry Roth, who will be executive chairman of the firm. Wentworth and its broker/dealer subsidiaries, including PKS Investments, will be the market-facing brands.
“One of the challenges SPACs have had is, they’re out trying to buy companies that are, generally speaking, new maybe technology companies that probably have a bright future but don’t have much profitability. So they’ve been trading at deep discounts and in many cases (the deals) may not even happen,” Roth said.
Roth, who served as lead director of the SPAC since it launched over two years ago, said this one will be successful because Wentworth is an established player in the hybrid advisor space, and generates positive cash flow.
“But also importantly is, the shareholders of Wentworth are essentially rolling all their shares into the public company,” Roth said. “Unlike a lot of SPACs, where people are trying to take money off the table, these owners are believers in the business, they want to continue to own the business; they want to grow the business; and they’re interested in being public because we believe it will help us raise capital for all kinds of reasons, but mainly it’s growth capital in the hybrid space.”
The capital raised from the IPO will be used clean up Wentworth’s balance sheet, hire more advisors and grow the business. An investor presentation outlined a number of Wentworth referral partners, including Dynasty Financial Partners, Fidelity, Charles Schwab and Focus Financial Partners.
“In order to keep growing the back-office and the team and investing in technology just to take advantage of these strategic partnerships, we need additional capital,” Roth said.
Excluding acquisitions, the firm grew its rep headcount by about 47% from 2018 to 2021 through recruiting and referrals.
Roth will not have full-time operational responsibilities, but he will be responsible for setting the overall strategy of the firm and managing those strategic relationships. He’ll maintain his position as managing director of RLR Strategic Partners, a wealth management-focused private investment firm and M&A advisory boutique that he operates in association with Berkshire Global Advisors.
Craig Gould, current president of Wentworth, will serve as CEO of Binah, and David Shane, former CFO at Sanctuary Wealth, has been appointed CFO. The existing management team at Wentworth will remain intact. Ryan Morfin, the former CEO of Wentworth, exited the company in September.
The old board of KWAC will peel off, and a new board is currently being assembled. Michael Nessim, CEO of KWAC, will exit the firm, although he’ll still be a shareholder. Nessim will continue to serve as president of Kingswood U.S.
The broker/dealer entities will not be consolidated, Roth said, and advisors won’t experience any repapering of client accounts. The firm will form an executive committee that will include a subset of operational executives to guide the strategy and make decisions on investments in technology at the holding company level.
The firm’s trailing 12-month pro forma revenue through September 2022 was $183.7 million, with gross profits of $33 million. It reported net income of about $2.8 million for 2021 and cash provided by operating activities of $2.5 million.
The merger will represent an enterprise valuation of $213.6 million, or 1.1 times 2021 pro forma revenue. Wentworth and KWAC expect to raise $30 million in convertible preferred equity capital and $24.2 million in debt capital in conjunction with the transaction, according to the investor presentation.
Wentworth was founded in March 2016 to acquire b/ds in order “capture economies of scale needed to service financial advisors” and help them grow. In December 2017, Wentworth made its first acquisition of an independent broker/dealer by purchasing Albany, N.Y.-based Purshe Kaplan Sterling Investments. Wentworth also acquired Cabot Lodge Securities and World Equity Group.
“We’re carving out a niche in what is the fastest-growing section of the space, which is hybrid advisors, growing organically, growing through spin-outs or breakaways, etc.,” Roth said. “But we’re doing it in a way that we’re not competing with the giant RIA consolidators, and we’re not competing with the large broker/dealers.”
If the deal closes, it would not be the first successful SPAC in the wealth management space. Just this week, Tiedemann Group, Alvarium Investments Limited and Cartesian Growth Corporation closed on their deal to merge and go public as Alvarium Tiedemann Holdings, which starts trading Jan. 4 on the NASDAQ under tickers “ALTI” and “ALTIW.”