Financial technology firms have been at the center of attention in recent weeks, with a flurry of transactions involving financial technology providers.
Private equity firm TA Associates bought a majority stake in NorthStar, parent company to CLS Investments, Gemini Fund Services and Orion Advisor Services. Fidelity moved to fill a data aggregation and financial planning hole in its offering, buying eMoney Advisor. SS&C continued its acquisitive ways, buying Advent Software after prior purchases of GlobeOp, DST Global Solutions and Portia.
Prior deals in the financial technology arena included Morningstar’s purchase of By All Accounts, Actua’s acquisition of FolioDynamix and the acquisition of Placemark by serial acquirer Envestnet. Financial technology firms left out of the merger frenzy must be starting to feel like guests wearing sweat pants to a black tie event.
Many advisors probably feel the same way, wondering whether they’ll see any benefits from these deals.
What Your Peers Are Reading
People often talk about mergers using the same cliché often used by boat owners: the happiest day is the day you buy a boat and the second happiest is the day you sell the boat! I’ve been both buyer and seller in financial services deals, and have seen the good, the bad and the ugly of mergers. I’ve benefited from transactions that worked well, while suffering through those that were poorly thought out or failed in implementation.
One of the most memorable moments of my career was the morning I found out that my firm was divesting a troubled subsidiary, freeing me from a transaction implementation that wasn’t working. I remember dancing a jig on the train platform that morning, which to my great relief, no one captured on film.
Will these deals end in great success or in heartache? Advisors have every reason to be skeptical, but we see reasons to be optimistic about these business combinations. Here are our thoughts on each.
My firm, Advisor Partners, has more than an academic interest in the TA Associates acquisition of NorthStar. Orion Advisor Services provides services to us and we’re also preparing to work with Gemini Fund Services on a mutual fund that we’ll be sub-advising.
We’re optimistic about this transaction, expecting the involvement of TA to have a positive impact. This transaction provides exit capital for a co-founder who wants to cash out of the business, resolving a potential liquidity issue for NorthStar. In addition, it can be expensive to spend the money necessary to have technology offerings keep pace with tech spend from deep-pocketed competitors. The transaction may provide the funding for Orion and Gemini to retain a competitive edge.
We view TA as a good strategic partner for NorthStar, sharing their insight as a private equity firm with extensive experience in financial services. Although TA will eventually require an “exit” from their investment in NorthStar, their track record implies that they’ll be around for several years before another liquidity event becomes necessary.
We’ll be monitoring our relationship with Orion to identify any deviations from our expectations. Given the transaction, we’ll be paying extra attention to their level of service, evaluating whether the resources allocated to our account have increased or declined and monitoring whether we have more or less access to key decision-makers. We’ll also assess strategic or financial changes that filter down to us as an advisor client.
Fidelity’s acquisition of eMoney Advisor appears to be a step forward in Fidelity’s quest to build a next-generation advisor platform, and another milestone in the industry’s competitive response to the threat of robo advisors.
eMoney Advisor adds to Fidelity’s capabilities, providing an integrated dashboard of financial data as well as financial planning and collaboration tools. eMoney has been aggressive at building integration capabilities, linking its dashboard to a broad array of other software tools. The transparency that eMoney provides to other client assets appears to be a foundational element to this transaction.
Advisors who use eMoney, but don’t use Fidelity as their primary custody provider, have expressed the most vocal concerns about this transaction. It’s a rational concern, given the mixed experience advisors have had with custodian acquisitions of technology providers.