It is not a merger. It is not an acquisition. It certainly isn’t an aggregation. No, the coming together of Savant Capital Management and The Monitor Group, announced Wednesday, is a combination creating a new company, Savant Capital LLC.
The firms’ principals believe the new company will create not only a bigger fee-only RIA firm—with $2.7 billion in AUM and nearly 90 employees—but will also provide a solution to three dilemmas that face many pioneering RIA firms: how to provide continuity for clients, a growth plan with succession overtones for the principals, and a path to ownership for the next generation of advisors.
Those principals—Tom Muldowney, currently Savant Capital Management chairman and principal; Glenn Kautt, president and chairman of The Monitor Group; Brent Brodeski, CEO and principal of Savant Capital Management; and Richard Bennett, Savant Capital Management principal and COO—will form the board of managers at Savant Capital LLC, which will be based in Rockford, Ill., currently headquarters of Savant Capital Management, and will begin its new life with 10 offices in four states and will serve clients in many more states.
In an interview on Wednesday with AdvisorOne, Muldowney, Kautt and Bodeski spoke of what prompted the firms to sign a definitive agreement to form Savant Capital LLC, their plans for growth and why their model might well prove attractive to similar RIA firms.
Muldowney (left) notes that many such principals who formed now-successful RIA firms decades ago but who may now be “60-something” are faced with a challenge when it comes to solving those three dilemmas. “We’re faced with three choices,” Muldowney said. First, RIA firm principals can go with an aggregator who can offer “a lot of money” but also will exercise much control, and “lets the owner slip away.”
The second option, he says, is “to never sell the business, because the annuity value [i.e., the cash flow] of the business is more than the sales value,” Option number two, he argues, also poses a distinct “disadvantage to clients and the next generation of advisors.”
The third option is to make an internal sale to current staff. That’s far from optimal, according to Muldowney, because these firms, he says tongue in cheek, have “become accidentally valuable, making it near impossible for the second generation to afford” such a sale. In addition, he says, there’s the “clumsy” tax consequences of selling a firm. So, he says, “Glenn, Dick, Brent and I brainstormed for quite a while.”
The two firms began talking six years ago under the aegis of the Zero Alpha Group (ZAG), says Kautt, the international association of independent advisory firms of which both firms are long-time members. Those casual talks got serious only a year ago—and in the process they realized, said Muldowney, “We don’t have to sell if we can combine our firms and run it like a publicly held company even though it’s a closely held firm.”
That led to the signing of the definitive agreement on “Monday night at about 9:00,” said Muldowney. Kautt pointed out that the next stage in the combination is to follow the regulatory steps, including notifying both firms’ clients of the combination, which he said would likely happen by the end of June. However, integration of the two firms “begins now” and that “we’re giving ourselves up to a year.”
Kautt (left) stresses that the arrangement is not a merger or acquisition, but a new LLC company that will issue shares to the current owners of both firms with “no liquidity event” thus avoiding the tax consequences, but will also provide the combined company with the ability to share the best practices of both firms, “like we’ve been doing at ZAG” while supplying “more bench strength.”