United Capital will use funds to quickly double in size

September 25, 2009 — 6:27 PM UTC by Brooke Southall


In what may be a good sign of a turn in the merger market, United Capital Financial Partners Inc., a firm that buys wealth management firms and weaves them together, raised $15 million from Bessemer Ventures.

With this funding in hand, the Newport Beach, Calif. – based aggregator plans to double the size of its firm from $10 billion of assets under management from 23 subsidiary practices to at least $20 billion of assets under management, according to Matt Brinker, vice president of partnership development for United Capital.

The company expects to acquire fewer firms in this round because it keeps acquiring larger ones, he adds.

The aggregator also expects that its growth will occur much more rapidly for its next $10 billion than the five years it took to collect that amount the first time around.

Though the firm didn’t set any timetables, it believes that market conditions are conducive to going on a fruitful buying spree.

“It’s a good time to be opportunistic because of the way the market has fallen apart and the way that industry is facing challenges,” Brinker says. “We’re not going to be taking advantage of people but we’re looking for opportunities to invest in people we can help with our greater economies of scale.”

David Selig, CEO of Advice Dynamics Partners, an M&A consulting firm in San Francisco agrees. “Aggregators like United Capital are well positioned to capitalize [on the current market environment], and Bessemer recognized this,” he says

Still, Brinker expects the venture capital to stretch far enough in this market environment that United Capital will never have to seek financing from the private equity market again.

“We’re set,” Brinker says. “That’s our last round of VC funding. We’ll be self-financing or we’ll do debt financing. Private equity is the most expensive capital.”

One twist in getting the $15 million was that United Capital had to take on a new venture partner, Bessemer Ventures of Larchmont, NY. Grail Partners provided its first VC round but Bessemer offered one clear advantage this time around.

“They delivered the money in a difficult environment,” he says.

Why did United Capital get funding when other aggregators are having a rough time of it? Brinker points to the phenomenon of competitors getting first dibs on cash flow. The deal might be set so that the roll-up firm and the smaller practice split a $1,000,000 cash flow 50-50. But if cash flow drops to $700,000, the roll-up still gets $500,000 and the acquired firm gets $200,000.

“Time and again, the financial model didn’t work,” Brinker says. “NFP proved it based on its share price and what we’re hearing in the market that things are not going well there.”

National Financial Partners acquired more than 100 financial advisory practices and its stock price traded at $50 as recently as late 2007. It trades at about $8 a share today.

The Bessemer funding should help raise spirits for RIAs in general, Selig says.

“This should send a signal to the broader RIA community: the independent model is not only optimal for advisers and clients, it’s worth investing in.”

No people referenced

Mentioned in this article:

United Capital Financial Advisers
RIA Welcoming Breakaways
Top Executive: Joe Duran

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Stephen Winks said:

September 25, 2009 — 10:42 PM UTC

If RIA rollups (1) do not add any value by providing the enabling processes, technology, functional division of labor, statutory documentation, conflict of interest management, advisory services support for each of the ten major market segments necessary to support fiduciary counsel and to make the full range of advisory services scalable and (2) do not provide a financial model that works in good times and bad, then wouldn’t it be a good idea to structure RIA rollups around a model that actually understands and supports advisory services rather simply leverage off the value the advisor creates?

Looks like United Capital gets it, the advisor and their needs are actually important.


Monica said:

September 28, 2009 — 6:21 PM UTC

Congratulations to Matt and the team at United Capital! Well deserved!

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