Edelman Financial Engines tapped private equity giant Warburg Pincus in a recapitalization that values the investment advisory firm at $7.3 billion, according to an announcement earlier this week.
The valuation is a boon for private equity investor Hellman & Friedman, which merged Edelman Financial Services, Ric Edelman’s registered investment advisory firm, with Financial Engines, the tech-focused corporate retirement plan advisor, in a 2018 deal that valued the combined entity at $4.5 billion at the time, according to insiders.
Hellman & Friedman still holds the majority stake in the firm, while Warburg Pincus will own a percentage that’s in the “mid-to-high teens,” said Michael Martin, Warburg’s head of financial services. That suggests Warburg Pincus invested somewhere in the range of $1 billion to $1.4 billion. Founder Ric Edelman continues to be the largest individual shareholder.
Edelman Financial Engines has over $260 billion in client assets, 150 offices and over 1 million clients. Many of those clients are employees of plan sponsors that use Edelman Financial Engines for their corporate retirement plan, some of whom also use the services of the firm for broader financial planning.
Edelman Financial Engines plans to use the additional capital to invest in both its workplace retirement plan business as well as its retail channel and will add to its technology investments for advisors and clients, according to Edelman executives.
“We want to be able to help people with any decision in their life that has a dollar sign,” said Larry Raffone, president and CEO of Edelman Financial Engines.
That includes an upgraded and interactive financial planning platform, a prospect portal, and a system that routs new leads to an advisor’s CRM. They also plan to recruit more financial advisors and will look at acquisition targets in the registered investment advisory market, Raffone said.
The deal marks a return of sorts for Warburg Pincus to Edelman Financial Engines.
In 2015 the Warburg Pincus was the majority owner of the Mutual Fund Store, at the time an RIA with close to $10 billion in assets, when Financial Engines acquired it in 2015 for $560 million, giving Warburg a 12.5% stake in the then publicly traded company.
When Hellman & Friedman acquired Financial Engines in 2018 and took it private for $3.02 billion, Warburg Pincus was on the other side of the table as a shareholder. Hellman & Friedman would then merge Financial Engines with Edelman, which it had acquired in 2015.
“We have the top five or six private equity firms interested including him, but Michael (Martin) is my lead shareholder negotiating on behalf of the board. He couldn’t represent the selling company but also be the buyer,” said Raffone.
Martin agreed to wait before reinvesting in the firm. During that time, valuations of firms across the wealth management landscape have skyrocketed, but the investment demonstrates Warburg Pincus’ commitment to the firm and to the RIA business model, observers said.
“Another huge influx of capital into the wealth management industry,” said Brian Lauzon, managing director of InCap Group, an investment bank and consulting firm. “Warburg Pincus was an early investor in Financial Engines prior to their going private in the Edelman acquisition. So, they have a unique familiarity with that side of their business.”
A Private Equity Round Robin
1986 – Edelman Financial Services is founded by Ric and Jean Edelman in Fairfax, Va.
1996 – Financial Engines is founded in Sunnyvale, Calif. by Nobel Laureate William Sharpe
2005 – Publicly traded brokerage firm Sanders Morris Harris Group takes a 51% stake in Edelman Financial Services, then with $2.6 billion in assets, for $12.5 million (eventually upping its stake to 75%, and adopting the name The Edelman Financial Group in 2011.)
2010 – Financial Engines goes public on NASDAQ, raising $127 million.
2011 – Warburg Pincus acquires registered investment advisory firm The Mutual Fund Store.
2012 – Lee Equity Partners buys out public shareholders of Edelman Financial Group for $258 million, taking it private.
2015 – Hellman & Friedman acquires a majority interest in Edelman from Lee Equity Partners, valuing the firm at over $1 billion, according to insiders.
2016 – Financial Engines buys The Mutual Fund Store, with $9.8 billion in assets under management, for $560 million. The deal gives Warburg Pincus a 12.5% stake in Financial Engines. Warburg Pincus exits its position in 2017.
2018 – Hellman & Friedman complete the acquisition of Financial Engines for $3.02 billion, takes it private and merges it with Edelman Financial Services in a combined entity worth $4.5 billion. Larry Raffone remains CEO; Ric Edelman remains largest personal shareholder and continues being the public face of the firm.
2021 – Warburg Pincus returns, taking a "mid- to high-teens" percentage interest in Edelman Financial Engines that values the firm at $7.3 billion.