Years of rumors have materialized as behemoth technology provider Envestnet announced it’s returning to private ownership through an acquisition by Bain Capital.
The transaction, which values Envestnet at $4.5 billion, or $63.15 per share, includes stakes by previous investors and strategic partners in the firm—Revenerence Capital, BlackRock, Fidelity Investments, Franklin Templeton and State Street Global, which will ultimately hold minority shares in the business.
Rumors of interest from Bain Capital first surfaced in an April Reuters report citing confidential sources.
At that time, Envestnet had received interest from multiple private equity firms, including Bain Capital, sources told Reuters. It was also reported that Envestnet had hired Morgan Stanley to serve as its investment bank in the process and help navigate buyer interest, which today’s statement confirmed.
Company executives have expressed on background for several years some of their frustrations and the constraints inherent in being a public company, and the shift to private ownership was referenced in today’s statement along with the company’s desire to "accelerate our ability to further elevate our market-leading platform with greater functionality and an even broader solution set."
Envestnet currently works with more than 500 of the nation’s largest RIA firms, has over 109,000 advisors, and has over $6 trillion in total assets on its platform.
"The board and its advisors conducted a process to maximize value for shareholders," said Jim Fox, board chair and Interim CEO of Envestnet, in a statement.
Bain Capital said in a statement that it would support Envestnet’s growth strategy through both organic and inorganic initiatives and make additional investments in its various product offerings.
"Through its deeply connected ecosystem and innovative technology and data capabilities, Envestnet has built an industry-leading platform that the largest wealth management firms, RIAs and broker/dealers rely on to power their businesses," said Phil Loughlin, a partner at Bain Capital.
Industry analysts and consultants see a fairly narrow set of likely outcomes from the acquisition.
“Bain is not really very well known for investing in things and making them more efficient and more innovative,” said Doug Fritz, co-founder and CEO of F2 Strategy, a wealthtech management consulting firm.
What seemed more likely, he said, was taking those parts of the business that are most successful and investing further in them while, in turn, shopping those that have been less successful or difficult to integrate around and selling them off.
Envestnet’s Yodlee unit, which was acquired in 2015 for $590 million, was the best example of the latter that came up with multiple sources interviewed for this story. (Rumors of Envestnet exploring its sale last came to light in December.)
“Envestnet is the world’s largest distribution vehicle and TAMP and model marketplace, so let’s grow the TAMP business,” he said as one strong hypothetical that Bain and the strategic partners who are asset managers are likely voicing behind the scenes.
Fritz said that strong products like Tamarac, which is used by many growing RIA firms as its core platform, would likely be further invested in and allowed to grow.
Longtime industry analyst and consultant Alois Pirker, founder and CEO of Pirker Partners, agreed with that assessment but said other factors would also be important considerations.
“There are cash flows to be maintained; after all, that is largely what valuations are built on,” he said, pointing to Motive Partners and ClearLake Capital’s majority stake in InvestCloud and preserving the revenue stream from its Security APL business as an example.
“We will likely see a narrowing of focus, cutting of the fringes, and then investment in strategic growth,” said Pirker.
“The classic TAMP market is changing,” he added, saying that he was curious to see the plans that Fidelity, BlackRock, State Street and Franklin Templeton would collaborate on in the new arrangement.
“Most people don’t have a good understanding, a firm grasp of what the TAMP market is today,” he said, pointing to expectations of high levels of customization for such platforms and deep personalization capabilities for both clients and advisors. He named GeoWealth and SmartX as examples of younger firms actively engaged in meeting these needs.
“Consumption of platforms has changed dramatically, and I think we are going to see that re-architecting of the [tech]stack is going to be a priority if Envestnet wants to reach that next phase of growth,” Pirker said.
In an interview late Thursday, Tom Sipp, executive vice president of Business Lines for Envestnet, pushed back against suggestions that Bain's reputation or interests might be more toward breaking Envestnet up into constituent components and selling them off.
“I would push back in the extreme,” he said.
“Bain Capital’s reputation is second to none as a partner,” he said, noting the firm’s $185 billion in assets invested across many industry sectors,” said Sipp, referring to Bain Capital’s network of external experts that can be brought to bear in supporting major Envestnet initiatives.
“We’ve spent a lot of time aligning on the strategic plan, and as we get into a private setting, we are going to be able to deliver a lot faster and increase our momentum,” he said when it comes to further developing and consolidating Envestnet’s technology stack. The firm, he said, had made great strides in breaking down silos and in automating its technology over the last two years.
Asked to elaborate on the firm’s rationale for going private, he said it provided more freedom.
“A lot of short-term shareholders that only care about the numbers in the short-term," he said of remaining a public company.
"It is long-term thinking, having long-term investors that will allow us to pursue our long-term strategic plan,” Sipp said.
The transaction is expected to close in the fourth quarter of 2024, but it must be approved by Envestnet’s shareholders and receive regulatory approvals.
This is a developing story, and it will be updated as details become available.