Envestnet, Inc. (ENV) said Friday that it would acquire Prima Capital Holdings for $13.7 million in cash, adding Prima’s research, manager due diligence and asset allocation modeling offerings to Envestnet’s growing platform of investment and wealth management products and services for advisors.
“Prima is a market leader in delivering institutional-quality investment manager research and due diligence to top-tier wealth management organizations,” said Envestnet Chairman and CEO Jud Bergman in a statement. “The potent combination of Envestnet and Prima advances our clients’ ability to transform the wealth management industry.” Envestnet has been on the acquisition trail of late. In December 2011, it closed on the acquisition of TAMP provider FundQuest Inc., the U.S. separate account, portfolio overlay and institutional asset management and consulting unit of BNP Paribas.
In an interview with AdvisorOne on Friday, Bergman said that the acquisition fits into Envestnet’s core strategy of serving its existing advisor clients, but also gave the company entrée to Prima’s customer base among regional broker-dealers and the bank channel. Over time, he suggested, “their client base may be responsive to additional solutions from Envestnet.” Prima’s tools will help strengthen Envestnet’s core AdvisorSuite of offerings, Bergman continued, and looking at that platform’s offerings of “advice, invest, manage and report, Prima fits in very nicely in the advice quadrant.”
Moreover, he said Prima’s research and due diligence “will improve Envestnet PMC over time, and building on the strength of both of those product lines, we’ll be able to enhance the Prima research offerings” as well. From a revenue diversification standpoint, Prima helps Envestnet since, Bergman pointed out, Prima’s services are subscription based compared to Envestnet’s asset-based revenue model. Envestnet also has a significant presence already in Denver, where Prima is based.
Referring to Envestnet’s growth strategy, he said that “serving our existing advisor clients—that’s still the core of our strategy, to deepen our advisor relationship—has generated predictable growth over time” of 20%, Bergman said, “but we want to accelerate that growth with strategic acquisitions” such as with Prima.
In an earlier interview with AdvisorOne in August, when the FundQuest deal was first announced, Bergman had suggested that more acquisitions were possible. “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,” Bergman said then. “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.
“Prima,” said Bergman in the Friday interview, “is a very good fit for us financially and strategically.”
Prima’s research and due diligence clients include regional BDs, trust companies, banks, and independent RIAs and family offices. Its main research tools include PrimaGuide, which allows users to research separate account and mutual fund managers, and its AllocationGuide proposal system. Prima also serves as portfolio strategist and advisor to a series of target retirement date funds and target risk portfolios which bundle managers from Prima’s research into a series of globally diversified portfolios.
Broadridge Financial acquired majority ownership of Prima in January 2011 as part of Broadridge’s acquisition of Matrix Financial Solutions. In a statement, Broadridge Chief Development Officer Tim Gokey said Prima was a “profitable and growing but non-core business for Broadridge.”
Prima’s founder and CEO, J. Gib Watson III (left), blogs regularly for AdvisorOne on portfolio construction for wealth managers, and the firm’s analysts and Watson have partnered with Investment Advisor magazine for the last seven years in naming the annual Separately Managed Account Managers of the Year. Upon the closing of the acquisition, which Envestnet said in its 8K filing with the SEC that it expects to occur in the second quarter of 2012, Watson will become Group President of Envestnet•Prima, a new business group within Envestnet.
“We’ve known Gib and his team for a number of years,” Bergman said, and “we highly value their approach and their disciplined due diligence and research offerings.”
In its statement, Envestnet said it would employ Prima’s “objective advice, analytics and data” to enhance its wealth management platform, particularly on managed account strategies of both the UMA and SMA variety, and on mutual funds, ETFs and alternative investments.
In a separate interview Friday afternoon, Watson said that “when you look at the combination of products, services and solutions that we take out to the wealth management industry, it’s a powerful combination.” Moreover, he said, “we’re retaining the Prima brand—it’s a strong brand in the wealth management industry, and we’ll be a separate operating division within the Envestnet family.” While Prima will move its offices to the existing Envestnet offices in downtown Denver—which Watson joked were “a weak seven-iron shot” from its current location—he doesn’t “foresee much change here going forward. It’s a win-win-win for our clients, Envestnet and the industry.”
When asked what attracted Envestnet to Prima Capital, Watson mentioned Prima’s “investment quality research, due diligence and advice,” but also its asset management business, its presence in the retirement plan marketplace, its technology and its clients: bank private client groups, family offices and RIAs and breakaway brokers.
“To Envestnet’s credit, they have a very good strategy, a transformative strategy,” Watson said. “They saw growth in the independent advisor market, the growth in fee based advisory services, and the demand for intelligent technology outsourcing. They’ve built and acquired the technology that makes all of this happen, in a seamless, integrated fashion.”