Envestnet to Acquire Tamarac for $54 Million; Gets Entrée to Higher-End RIAs

Portfolio technology provider Tamarac has 500 advisor firm clients; will become separate division within Envestnet, which will use available cash to fund the acquisition

Jud Bergman, Chairman and CEO of Envestnet. Jud Bergman, Chairman and CEO of Envestnet.

In the latest of a string of acquisitions, Envestnet Inc. (ENV) announced Thursday that it would acquire Tamarac Inc. for $54 million in cash.

Envestnet said in a statement and its 8K filing with the SEC that it expected to close on the acquisition in the first half of 2012, subject to certain closing conditions. Members of Tamarac’s management, Envestnet’s statement said, “have agreed to vote in favor of approval of the transaction.” 

In addition to the $54 million price tag, which Envestnet said it would fund with available cash, the 8K says that Envestnet will set aside $7 million worth of ENV common stock in a management incentive plan for certain Tamarac employees based on Envestnet*Tamarac, the name of the new division at Envestnet, meeting “certain financial targets.” 

Just last week, the Chicago-based company announced it would acquire Denver-based Prima Capital from Broadridge; it closed on the acquisition of FundQuest Inc. in mid-December. Chicago-based Envestnet went public in July 2010.

"We’ve long been in the RIA market," said Envestnet CEO Jud Bergman in an interview with AdvisorOne on Thursday, "but a certain segment that looks to partner with firms that provide investment management" solutions. Tamarac, Bergman said, has "made its reputation by supporting very large RIAs, with best in class portfolio and rebalancing solutions; they’ve proven it. We’ve loved what they’ve done with that segment, have served that segment very well, but we think together we can do so even better.”

In an interview last August, when the FundQuest deal was first announced, Bergman signaled that additional acquisitions were possible. "We’re regularly evaluating [potential acquisitions] that will bring us access to more advisors or promising new technology, or the opportunity to provide services to new channels” (For more on Envestnet and its strategies, please see the June 2011 cover story of Investment Advisor.) 

The Prima and FundQuest acquisitions add Prima’s research tools, asset allocation modeling, and access to banks and wealth management firms, and TAMP provider FundQuest’s products and research to the Envestnet wealth management platform. Fast-growing Tamarac, which offers portfolio management tools and broader technology outsourcing to its advisor clients, provides Envestnet with an immediate boost to its presence in the RIA market. Tamarac, said its CEO, Stuart DePina, has 500 advisory firms as its clients, and they will benefit from the acquisition in multiple ways. 

The Tamarac acquisition, said, DePina, will be “the best thing for our shareholders–they’ll get a good return on their investment, but our clients will be in a position” for better returns on their relationship as well. Part of the benefit to its existing RIA clients, DePina said, will be access to Envestnet’s “deeper wallet” to help fund its continuing expansion, and he pledged that Tamarac would keep as its top goal the servicing of its existing clients.  “The management team stays in place,” said DePina, with no layoffs planned.

Tamarac will operate as an independent division within Envestnet called Tamarac*Envestnet (similar to how Prima will fit into Envestnet). "Think of it as a product group or business group" within Envestnet, said Bergman, providing "integrated practice management solutions for large RIAs."

The core of Tamarac’s service structure is its client support team, which will not change, said DePina (left). “Every person who works on our client support team has worked [previously] within an RIA firm,” he said. “When a client calls, they get somebody who understands the elements of how a firm operates.”

DePina said, “We spend time in clients’ offices helping them integrate technology,” and that “the majority of the features in our products are the result of direct input from our clients” which has provided the catalyst “to grow and nurture our consultants.” Those consulting services to

client firms will be a bigger part of Tamarac’s offerings to existing and new clients, DePina suggested. 

Matthieu Stroh (left), Tamarac’s VP of marketing, said in the same Thursday interview that 2011 marked the fifth straight year of the firm posting 50% growth in revenues, and that last year Tamarac also had 100% increase in new business over the prior year. “That says a lot about what RIAs are looking for: an integrated platform to outsource in a custodian-agnostic way,” said Stroh. “When we looked at our own products and services roadmap, we had been planning on adding investment products and an investment policy statement; Envestnet is keenly situated to help us check the box on an end-to-end solution” for clients. 

DePina said another benefit to Tamarac clients will be gaining access to certain of Envestnet’s investment strategies, including separately managed accounts, “that a number of our clients have asked us to supply.” He estimated that 20% of those firms could benefit from those investing products. 

While Envestnet will benefit, as Bergman said, by gaining entrée into the higher-end RIA market–its business is more among independent broker-dealers, DePina pointed out–Tamarac will also gain access to that BD market.

“We’re a small company,” DePina pointed out—there are 100 employees in two locations: Seattle and Raleigh, N.C.—and “we have had a dozen RFPs over the last year that we can’t respond to.”

In the “not too distant future,” he said, “we can leverage Envestnet’s distribution channel to introduce our products into that marketplace.” In addition, DePina said, there are “certain technology components that Envestnet has done; so rather than recreate the wheel, we can borrow theirs,” including, for example, Envestnet’s  proposal generation tool, which “a third of our customers could benefit from.”

Bergman said the acquisition is a "very good fit," since Tamarac has "great software and great developers and great service," while Envestnet can boast of a  "great back office, advanced portfolio analytics and advanced research and access to a product suite" that Tamarac's existing clients wanted. "Stuart [DePina] will be a key player running this unit."

As for using cash to finance the acquisition, Bergman said "We’re a strongly positive cash flow company; so we’re generating cash," but that going public in 2010 "gave us the means to implement our strategy."

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