In June 2021, Blucora, the parent company of Avantax Wealth Management, the tax-centric broker/dealer created from the acquisitions of HD Vest and 1st Global, laid out plans to bring together its tax software and wealth management businesses. At the time, CEO and President Christopher Walters said he expected the synergies between those two businesses to deliver $2 billion in net new assets by 2024.
Now, the company is shedding its TaxAct business. An affiliate of Cinven, a global private equity firm, has agreed to buy TaxAct for $720 million in cash in a deal expected to close by the end of the year. It expects to generate after-tax net cash proceeds of about $620 million. Haynes and Boone LLP represented Blucora in the transaction.
As a result, Blucora will rebrand as Avantax, and become a pure-play wealth management firm. It will use the proceeds to pay down debt and return excess capital to shareholders, according to an announcement.
“Moving forward, Avantax will have the focus and cost structure to invest for growth and deliver strong adjusted EBITDA margins, which following the transition services period, we would expect to be in the 16% to 18% range, assuming a more streamlined corporate structure,” Blucora CFO Marc Mehlman said on an analyst call Tuesday morning. “This transaction will position each of our businesses to operate from a position of strength after both turned in peak performances this year across the most critical KPIs.”
Ancora Holdings, an investment advisory firm and Blucora shareholder that waged a public proxy battle with the company for board seats last spring, has been calling on Blucora to sell TaxAct since last year. At the time, Ancora argued Blucora’s valuation multiple was below the peer group median, and that the company’s corporate overhead represented approximately $6 to $7 per share in value reduction.
“It appears to us that investors are still unconvinced that pairing a wealth management business and a tax software business will yield any viable synergies or underpin significant value creation,” Ancora CEO Frederick DiSanto wrote in the letter to the board.
Year to date through Oct. 31, Blucora’s stock price is up nearly 25%. It rose about 9% after the transaction was announced.
In addition to announcing the sale, Blucora also detailed its third quarter earnings results. Overall, it reported non-GAAP earnings per share of a loss of 20 cents, missing analysts’ expectations by 1 cent, but up 23% from a year ago. Revenue was $171.7 million, down 1.4% year over year, beating expectations by $6.56 million.
Over the last nine months, the firm added $1.3 billion in newly recruited assets. During the third quarter, it recruited advisors with over $200 million and closed on four acquisitions in its RIA business.
The company reported $380 million in positive net flows during the quarter, the highest since the first quarter 2018, resulting in roughly $810 million in year-to-date positive net flows. Total client assets reached $72.6 billion, including $35.4 billion of advisory assets, representing nearly 49% of total client assets.
Avantax ended the quarter with a total 3,347 financial advisors, about flat from the second quarter and down about 182 from a year ago.
