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Financial Engines to Acquire The Mutual Fund Store for $560M

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Financial Engines announced Thursday that it will acquire the big RIA firm The Mutual Fund Store from Warburg Pincus and management in a cash and stock deal valued at $560 million that the companies said expects to close late in the first quarter of 2016. The purchase, the company said in a statement, will include $250 million in cash and 10 million shares of Financial Engines common stock.

The deal will allow Financial Engines to “expand its independent advisory services to 401(k) participants through comprehensive financial planning and the option to meet face-to-face with a dedicated financial advisor at one of more than 125 national location,” meaning The Mutual Fund Store’s retail presences, according to the statement.

When the deal closes, Warburg Pincus is expected to own 12.5% of Financial Engines stock, making it the firm’s largest shareholder. Warburg Pincus Managing Director Michael Martin will join Financial Engines’ board after the closing.

Financial Engines began life as a proto-robo-advisor in 1996, co-founded by Nobel economics prize winner Bill Sharpe, developer of the Sharpe risk-return ratio. It reached maturity as a major provider of investment and related services to retirement plan sponsors and individual participants. It went public in 2010 under the ticker FNGN.

Sharpe remains an emeritus director at the company, along with being an emeritus professor at Stanford University’s graduate school of business. In May, Sharpe was named to the IA 35, Investment Advisor’s 35th anniversary listing of the most influential people in and around the advisory profession.

According to its Form ADV filed with the Securities and Exchange Commission, Sunnyvale, California-based Financial Engines operates in all 50 states, has 520 employees, provides services to 9.35 million clients and manages $104.4 billion in 953,754 accounts.

According to the press release announcing the acquisition, it is expected to “produce 2016 earnings per share accretion of approximately 25%, assuming the transaction closes late in the first quarter of 2016, and to increase the longer-term growth rate of the combined company.” 

The Mutual Fund Store has 345 employees and provides financial planning and investment services to 39,000 households at 125 locations, according to the company; it had $9.8 billion in assets under management as of Oct. 31.

After the closing, Financial Engines says it expects to post 2016 earnings before taxes, depreciation and amortization in the $125 million to $130 million range on expected revenue of $403 million to $410 million. CFO Ray Sims said in the same statement that “post-closing we expect to remain debt-free and we expect to generate significant free cash flow.”

The announcement came the same day that Financial Engines released its third-quarter results. The company had net income of $8.5 million, or $0.24 per share adjusted for stock option expense, on revenue of $78.8 million. The company projected full-year revenue in the $419 million to $426 million range.