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Investment Bankers: Fisher Is a Different Beast

Fisher Investments’ $12.75 billion valuation does not set a new benchmark for RIAs, but given the size, scope and buyer, it marks an inflection point for the industry overall, observers say.

Fisher Investments, a national registered investment advisor with more than $275 billion in client assets, announced plans Sunday to sell a minority stake in the firm to Advent International and a subsidiary of the Abu Dhabi Investment Authority in a deal valuing the RIA at $12.75 billion.

And while that may raise eyebrows in the wealth management industry, investment bankers active in the space agree it's likely a fair valuation for a firm of Fisher’s size, scale and organic growth rate.

Michael Wunderli, managing director at Echelon Partners, said it’s hard to come up with an exact valuation, not knowing all of Fisher’s financials. But using some middle-of-the-road assumptions based on the firm’s AUM, its average fee and profit margins that could reasonably be expected from a firm like Fisher’s, a back-of-the-envelope valuation falls around $12 to $14 billion. That requires a 20 times EBITDA multiple, he said, which is high, but not out of bounds for RIAs, particularly given Fisher’s unique characteristics and marketing savvy. 

“It's a household name; it's got the brand; it's got a proven track record over a long period of time,” Wunderli said. “So these are a lot of things that most wealth management firms don't really have, or at least don't have to this extent. That definitely bolsters the valuation.”

If it were a majority acquisition by a strategic acquirer, he said he would expect an even higher multiple.

But not all RIAs should expect a similar treatment in the marketplace.

“Fisher is in and of itself an outlier,” said Harris Baltch, managing director and head of investment banking at Dynasty Financial Partners. “They are a national wealth management firm that has been around longer than most, and the ownership was really concentrated ... primarily with one individual, which was Ken [Fisher].”

Fisher’s valuation is more than justified, Baltch said, given its size and scale. But the deal doesn't set a new benchmark for RIA valuations in the broader sense, he said.

“It’s very difficult to isolate one specific transaction and say that that one specific transaction is going to anchor or pull a valuation in one direction or another,” he said. “It's certainly something that I think up-and-coming platforms that are looking to grow in scale will certainly aspire to, but I think it's going to be very difficult to find that scarcity value of independence at the size that a firm like Fisher is at, and to go out to market and expect that you would get the same exact terms.”

“Premium pricing for RIAs continues, but there’s a heightened interest and sensitivity to making sure premium pricing goes to firms that have good organic growth histories, which Fisher obviously does,” said Brian Lauzon, managing director at Colchester Partners, a Boston-based investment bank.

John Langston, founder and CEO of Republic Capital Group, said this transaction does set a new watermark for valuations for firms with similar growth and vision to Fisher, although he too argues that valuations are too dependent on multiple variables to apply a Fisher multiple across the board.

However, Langston said the deal is more significant as an inflection point in the evolution of the independent wealth management space.

“I see this transaction as a harbinger of things to come,” Langston said. “It will certainly happen again, and I hope to be right in the middle of it personally.”

Given the trajectories, in the not-too-distant future Fisher could be three or four times its size in terms of AUM; Creative Planning could be five times bigger, he said.

He believes the concerns in the industry over where future capital and the next transaction come from are misplaced. While Fisher did take some private equity capital, it also attracted a sovereign wealth fund that had already made an investment in the U.S. wealth management space. Last year, Canadian asset manager CI Financial sold a 20% stake in its U.S. wealth management unit, now known as Corient, to a group of investors, which also included the Abu Dhabi Investment Authority. That deal valued Corient at about $5.3 billion. Prior to that, CI had plans to take the U.S. wealth business public.

“I do agree there’s complexity and challenges around the public markets right now for some of these firms, but the pools of capital extend so far beyond private equity more than people realize,” he said. “My perspective has been that we are fortunate that our wealth management model that we have in this industry is the most superior approach anywhere in the world.”

“Deals like this, particularly of this size, point to increased interest in not just traditional PE firms but also other pools of capital to get exposure to private wealth management industry and the macro trends that are fueling industry growth,” Lauzon said.

Baltch said Dynasty has been getting calls over the past 12 months from investment firms he’s never heard of before.

“They're reading about what's going on or maybe they have an ancillary portfolio investment that could benefit from some synergy of picking up a wealth management firm, so they're calling us to learn, to become educated.”

Wunderli says this transaction now brings Advent’s M&A expertise to Fisher as well as the capital to seek out its own investment opportunities, which would be a new endeavor for Fisher. He could see the firm becoming a large strategic acquirer of the big national RIAs.

“If Fisher starts acquiring large RIAs and then they have all of these resources to even compete at a higher level, that introduces new competition for these large RIAs for the acquisition side, but also for onboarding advisors and being an attractive place to go work,” Wunderli said.

“I would be surprised if there aren't larger plans in the works to do some sort of inorganic growth, expand into new business lines or acquire advisory assets.”

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