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The Sunnyvale, Calif.-based robo colossus needed human advisors, and the radio RIA liked having a non-radio source of new clients
November 5, 2015 — 11:15 PM UTC by Brooke Southall
Brooke’s Note: No, we didn’t see this one coming. But as aggressively as human RIAs are trying to add a robo aspect to their businesses, the robos are just as hungry to add people who can explain goals-based investing and staying the course to clients. Both buyer and seller here see greener pastures. Still, this deal between an RIA with location in strip malls wedged between Subway stores and beauty salons and an RIA that was built by the most human-averse, pointy-headed Palo Alto types is a real head-spinner. It’s what happens when partners with critical mass are moving fast in a hot industry still dominated by fledglings on the robo side and moms and pops on the human RIA side.
Financial Engines has signed an agreement to acquire The Mutual Fund Store LLC from Warburg Pincus LLC and management for total consideration of approximately $560 million, including cash and stock. See: How Mutual Fund Store is the real engine now at Financial Engines.
Based on the terms of the transaction, Warburg Pincus is expected to become Financial Engines’ largest stockholder, owning about 12.5% following the closing of the transaction.
Michael Martin, managing director of Warburg Pincus, will be appointed to Financial Engines’ board of directors upon closing. See: How Warburg Pincus plans to grow The Mutual Fund Store several-fold.
Financial Engines has a market capitalization of $1.76 billion and its shares closed at $34.01 today, less than half of the $70 price hit briefly in 2013.
Just down the road a piece
The total transaction purchase consideration includes approximately $250 million in cash and 10 million shares of Financial Engines common stock. The combined company will be debt-free following the transaction.
The pairing matches a Sunnyvale, Calif.-based company of quant geeks running what many view as the original robo-advisor with the ultraretail, mass-affluent RIA built very much on the charisma and personal knowledge of Adam Bold, a former Smith Barney stockbroker.
Since 2011, the Overland park, Kan.-based company has been professionally managed by CEO John Bunch, who formerly headed up TD Ameritrade’s branch network. See: John Bunch is hired as the new CEO of The Mutual Fund Store.
The Mutual Fund Store, once primarily a franchisor, has approximately 345 employees, 200 of whom are advisors, and approximately 84,000 accounts at about 39,000 households and more than $9.8 billion in assets under management, as of Oct. 31. It’s spread out over 125 locations, putting 70% of Financial Engines’ investors in driving distance of an advisor.
Bold and his original VC firm, Summit Partners, sold the majority of the company shares to Warburg Pincus for about $350 million, a deal first reported in July 2011. See: Mutual Fund Store sells controlling interest to Warburg Pincus. At the time, it had 70 stores and managed $6.6 billion in assets.
The name of The Mutual Fund Store will be changed to Financial Engines. Bold says he will continue to own a large number of shares and continue to do his radio shows. See: Financial Engines more than doubles its share price by defining a niche in the 401(k) market between target date funds and RIAs.
The main catalyst for the deal was the recognition of Financial Engines that it was bumping up against limits as a result of its lack of people.
“Putting money into a 401(k) isn’t enough,” he says. “Now you have access to real-life human beings. We can help you with assets outside and your life insurance.”
Indeed, the press announcement chalks up the deal to the need for driving greater usage and retention of Financial Engines’ services and helping 401(k) participants with more complex needs.
Financial Engines, Bold says, had no rollover strategy before the deal, and does now.
The deal validates industry chatter that Financial Engines was seeking more humans. See: What exactly to make of the big robo-advice deal that, according to Reuters, Financial Engines and Wells Fargo are nearing.“People might put $2,000 with a robo but when it comes to real money you earned over 20 years, you need a real person,” says Bold.
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