On Aug. 5, Envestnet Inc. (ENV) announced it would acquire FundQuest Inc., a TAMP with $15 billion in AUM and administration, for $24.4 million in cash in a deal that the company expects to close in the fourth quarter of 2011.
In an interview on Aug. 9, Envestnet co-founder and Chairman Jud Bergman (left) said, “We’re looking to retain the best of what FundQuest has, and build on it,” including the “continuity of key personnel” from FundQuest and providing the acquired firm’s existing advisors with “more investment portfolios and solutions,” including Envestnet PMC. The deal, he said, would also expand Envestnet’s revenue and cash flow and improve the Envestnet platform. But more acquisitions are also possible, Bergman said.
In a previous interview for the June 2011 cover story of Investment Advisor, Bergman disclosed that Envestnet planned to do “one or two” acquisitions in the coming year that would accelerate its planned 20% annual organic growth. Those “selected” deals, he said, would be either financially accretive and provide access to more advisors in the channels Envestnet already served, or be strategic acquisitions of application providers that add to or enhance functions on the Envestnet platform. Bergman characterized those types of acquisitions as “value accretive.”
“FundQuest is financially accretive,” he said, and added that the acquisition was the culmination of an 18-month process that began in February 2010 when the two companies signed a Platform Services Agreement (PSA) under which FundQuest’s 180 advisory firm clients gained access to Envestnet’s wealth management platform.
“We think there’s a real opportunity to achieve accretive results,” said Bergman, speaking by chance on the day when the public company released its second quarter results (see below). “We still expect to do one or two additional transactions over the coming three or four quarters, depending on what we’re able to identify; 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” beyond the broker-dealer and RIA advisors that the firm currently serves.
Speaking in the first week after Standard & Poor’s downgraded U.S. debt, Bergman said Envestnet was actively reaching out to advisors who use its platform. “Staying connected to the advisors is essential, we’ve had communications just yesterday [Aug. 8] with 300 of our top advisors. They’ve got a lot of choices, so how they’re allocating assets and selecting portfolio solutions is something we can help them with.”
Were those advisors changing their allocations? “We’re seeing advisors do a variety of things,” he said, “moving into equities, moving into alternatives and rebalancing.” While Bergman said that the flight to Treasuries “was not unexpected, it’s hard to get comfortable with bonds, though we’re very comfortable with high-grade corporates,” along with “larger allocations to non-correlative asset classes with liquidity.”
Bergman concluded by saying, “we’ve had advisors following that guidance, and advisors pursuing independent strategies, but using the analytical tools and the portfolio tools that are available on our platform.”
In the second quarter ended June 30, 2011, Envestnet, which went public on July 29, 2010, reported adjusted net income of $3.3 million, or $0.10 per diluted share, on a 29% increase in total revenues of $31.3 million, compared to the second quarter of 2010. Revenues from AUM and assets under administration increased 36% in the quarter to $25.4 million.
As of the end of the quarter, Envestnet said it had $16.5 billion in AUM, up 52% from the prior year, and AUA of $54.3 billion, up 28% from 2010’s second quarter. The total number of advisors using Envestnet was 20,814 at quarter’s end. In a statement accompanying release of the results, Bergman said the acquisition of FundQuest “should accelerate Envestnet’s growth.”