Sometimes called the original robo advisor, Financial Engines, which provides automatically traded managed accounts to 401(k) plans, announced Thursday it will acquire The Mutual Fund Store for $560 million in cash and stock.
The Mutual Fund Store is a nationally branded registered investment advisor with $9.8 billion in assets under management. The firm focuses on comprehensive planning for mass affluent clients.
In a statement, Financial Engines said it wants to use the acquisition to deliver The Mutual Fund Store’s planning services and in-person advisors to customers of its online 401(k) platform.
“By leveraging Financial Engines’ scalable advice technology to power The Mutual Fund Store’s services and in-person advisors, we believe we will be able to make high-quality investment advice and comprehensive financial planning available to everyone with access to our services through their employer,” said Lawrence Raffone, president and chief executive officer of Financial Engines. “This acquisition advances our vision to provide independent advisory services to more people and we believe will also fuel significant future growth.”
In a recent white paper, Silver Lane Advisors suggested moves like this would be necessary for digital advice firms to remain independent.
The announcement was made in conjunction with Financial Engines’ third quarter earnings report. The company expects the purchase to produce 2016 earnings per share accretion of 25 percent and increase the firm's long-term growth rate. The company expects 2016 revenue to be in the range of $403 million and $410 million.
“Importantly, post-closing we expect to remain debt free and we expect to generate significant free cash flow that will enable us to continue to invest in the business and drive growth initiatives,” said Ray Sims, chief financial officer of Financial Engines.
The deal gives Warburg Pincus, the private equity company that owned The Mutual Fund Store, a 12.5 percent stake in Financial Engines, making it the largest shareholder. Warburg Pincus’ managing director, Michael Martin, will join Financial Engines’ board of directors.