With FundQuest off its plate, Envestnet is ready for a helping of new deals

Envestnet Inc. has completed its purchase of FundQuest Inc. from BNP Paribas but the company’s attention may already be turning to deals it’ll be reporting in next year.

The big Chicago-based outsourcer now owns the Boston-based manager of $15 billion in assets (as of June 30, 2011). See: Why exactly Envestnet bought an investment manager that already sat on its platform.

FundQuest builds portfolios of mutual funds and ETFs for financial advisors. The purchase price was $24 million, though the deal also erased an $18 million liability from Envestnet’s balance sheet that it took on when the firm previously made a de facto acquisition of FundQuest’s distribution arm.

In 2010, Envestnet and FundQuest entered into a platform services agreement — which has been fully implemented — under which Envestnet provided its manager platform to FundQuest clients. This acquisition will enable the combined firm to build upon this platform and offer more-efficient and -integrated wealth management solutions.

The whole pie

Envestnet did a nice job with this deal — recognizing the opportunity first and then easing into the purchase, according to Dan Seivert, CEO of ECHELON Partners, the Manhattan Beach, Calif. based investment bank.

Dan Seivert: The acquisitions it makes
going forward are likely to be
about volume

The deal may also clear the decks for Envestnet to ramp up its growth by acquisitions, according to Jud Bergman, chairman and founder of the company.

“One of the reasons we went public was so we could be intentional about transactions. We can accelerate the transformation of our company and our industry,” he says.

Bergman declined to say what purchases his company is eyeing.

The knack of the deal

Seivert notes that “[Turnkey asset management programs] traditionally look to acquire other TAMPs for a couple of key reasons: 1) to add assets to their existing platform (the “economies of scale” argument) and/or, 2) to fill an opening in the technology or product lineup (the “comprehensive service offering” argument). With Envestnet having much of the product and technology front covered, the acquisitions it makes going forward are likely to be about volume. I think it is more probable that they pursue deals outside of the TAMP space, targeting ETF managers, smaller custodians, and/or retirement service providers as vertical or horizontal integration plays.”

When I asked Bergman over the summer about Envestnet’s plans to spend IPO cash on M&A, he downplayed his company’s ambitions and framed its appetite for deals as being more opportunistic.

Now Bergman allows that there are deals brewing that could close in the relatively near future.

“We’ve been working on bringing opportunities to the fore for some time and over time we expect to do a number of transactions.”

Gaining traction

Envestnet has history of pulling together deals at important times, Seivert says. He points to its earlier purchases of PMC in Denver, Oberon in Silicon Valley and Net Asset Management (NAM) in Santa Monica — companies and management teams he knew well as a venture capitalist covering the space.

“Like many of the companies in the fast growing TAMP space of the late 90s, these three targets faced challenges with technology development, customer service, and growth capital,” he says. “Perhaps the integration challenges Envestnet faced with these earlier deals motivated it to execute the FundQuest transaction in the unconventional way that it did.”

As part of the acquisition, Envestnet has announced that Timothy Clift, formerly chief investment officer and chairman of the investment committee at FundQuest, will join Envestnet|PMC as chief investment strategist, responsible for the development of investment strategies for client portfolios as well as the development of manager and fund strategist selection methods.

Clift joined FundQuest in 1994, maintaining overall responsibility for the firm’s investment management programs for separately managed accounts, mutual funds, alternative investments, exchange-traded funds and annuities.

Envestnet is headquartered in Chicago with offices in Boston; Denver; New York; Sunnyvale, Calif..; and Trivandrum, India. The firm has more than $127 billion in total assets served and more than 909,000 investor accounts.