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Shirl Penney

Industry Spotlight > Mergers and Acquisitions

Dynasty Scraps IPO as Schwab, Private Equity Firm Take Stakes

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What You Need to Know

  • Charles Schwab and Boston-based private equity firm Abry Partners are taking unspecified minority stakes in RIA aggregator Dynasty Financial Partners.
  • Dynasty has withdrawn the IPO registration statement it filed with the SEC in January.
  • Schwab is custodian for more than half the assets in Dynasty's network.

Dynasty Financial Partners scrapped its plan to raise $100 million through an initial public offering and instead closed on deals Friday in which Charles Schwab and Boston-based private equity firm Abry Partners have taken unspecified minority stakes in the RIA aggregator, asset management platform and service provider.

Dynasty’s decision to skip the IPO made sense to David DeVoe, founder and CEO of RIA consulting firm DeVoe & Co., who told ThinkAdvisor Monday: “The current market environment is not ideal for an IPO. The partnerships with Schwab and Abry will provide strategic power beyond capital.”

It was also “interesting to see Dynasty affiliates also engaged as part of the transaction,” DeVoe said.

DeVoe was referring to Dynasty disclosing that several Dynasty Network firms invested in Dynasty as part of an “equity swap” program that started concurrent with the round, while several existing Dynasty investors and directors of its board also invested additional capital in the firm as part of the investment round.

Most of those clients received Dynasty equity in exchange for their equity in the swap transaction, the firm said. “As a result, the Dynasty Network stands stronger and more aligned than ever, with many members of the network having an equity interest in the success of Dynasty and the Network,” it added.

Agreeing with DeVoe on what doomed the IPO, at least for now, Barnaby Audsley, Echelon Partners vice president, told ThinkAdvisor:  “Volatile public markets have been unsupportive of Dynasty, and many other companies’, plans to raise capital via IPOs this year (with activity down roughly 60% from a volume perspective relative to last year).”

Audsley added: “The poor performance of IPOs from the 2021 vintage (leaving a sour taste in investors’ mouths), market volatility, and dry powder in private markets likely drove Dynasty’s decision to shelve their IPO…. By pulling away from a souring IPO to switch to a successful cap raise is a good move but begs the question on terms of the raise and what they had to give up to ‘get the money.’”

What was unusual about the deal with Schwab is that company is ”typically a majority, control-oriented investor and rarely makes minority investments in private companies, which likely means they likely have favorable terms,” Audsley said. “Schwab and Dynasty have a deep relationship and this transaction brings the two parties closer together, better or for worse. The deal will likely tick off Fidelity and other custodians utilized by Dynasty’s partner network.”

In January, Dynasty filed a registration statement with the Securities and Exchange Commission for a proposed IPO that would list on the Nasdaq under the symbol DSTY.

Since then, published reports have said Dynasty was seeking other funding alternatives.

On Monday, Dynasty declined to specify how much Schwab and Abry had invested.

Explaining Dynasty’s rationale for its shift in strategy, Shirl Penney, its CEO and president, said in a statement on Friday: “After evaluating the state of the public markets, our board decided to have a handful of conversations with potential private investors.”

He added: “Having been afforded the luxuries of optionality and time, there were two requirements that were atop my list as we went through the process — partnership and alignment.” During that process, “several firms viewed the process in the same light,” he said.

Abry and Schwab will provide a “fresh perspective, industry experience, and institutional expertise that Abry will add to the boardroom,” according to Harvey Golub, Dynasty chairman. He noted that the deal with Schwab was “similar to Envestnet’s strategic investment in Dynasty in 2020.”

Schwab’s minority investment in Dynasty will “further align our commitment to the independent wealth management space,” Golub said. “We will look to revisit the public markets when the timing is right for our business.”

Due to the equity capital raise, Dynasty on Monday withdrew its registration statement on Form S-1, initially filed with the SEC on Jan. 19 and subsequently amended, it said.

Tech Investments Planned

Dynasty plans to use some of the capital it raised in the latest round to “make meaningful investments in technology and technology integrations, the addition of services to its Core Services offering, the further buildout of its TAMP and investment solutions offering, and the addition of intellectual capital and key talent,” it said.

The company also “plans to invest in the growth of Dynasty Capital Strategies, making further equity investments in its network of clients and making capital available for inorganic growth,” it said.

Dynasty also plans to “explore select opportunities for corporate development and M&A that would accelerate growth, add capabilities, and increase margin in various areas of the business,” it said.

An unspecified portion of the investment round “will be used to fund secondary transactions to provide liquidity to long-time shareholders and founders of Dynasty,” it added.

“Dynasty will continue to grow its relationships with other strategic partners in the space, including the other major custodians serving the RIA ecosystem,” it said.

“At a time when many businesses in the space are forced to hunker down and play defense, dragged down by leverage and rising interest rates, Dynasty is positioned to charge onto the offensive with fresh, friendly capital, a fortress balance sheet, and favorable margins,” according to Justin Weinkle, Dynasty’s chief financial officer.

Despite market volatility, the ‘Era of Independence’ continues to experience tailwinds as Dynasty positions to invest and continue executing on behalf of its clients and investors,” Weinkle added.

As previously announced in September, Dynasty closed on a $50 million credit facility from Citibank, Goldman Sachs Bank, J.P. Morgan, RBC Capital Markets and UMB Bank that provides access to additional growth capital.

Schwab serves as custodian for more than 50% of the $72 billion in assets under advisement Dynasty has in its network. The two firms have “long brought complementary strengths to their joint clients with Schwab’s expertise in the independent advisor ecosystem and Dynasty’s leading technology and services platform for independent business-owner advisors,” according to the companies.

“As advocates for independent advisors, we are thrilled to invest in a firm that shares our values of empowering advisors with the technology, tools, and resources they need to build even stronger businesses,” Bernie Clark, head of Schwab Advisor Services, said in a statement.

As part of its minority investment, Abry partner James Scola is joining Dynasty’s board.

“When looking at the RIA space and the growing ecosystem around it, Dynasty was one of the select brands we had been following for some time,” Scola said in a statement.

Goldman Sachs & Co. acted as exclusive financial advisor and Sullivan & Cromwell acted as exclusive legal advisor to Dynasty on the transaction.

New VPs

Separately, Dynasty and Cyndeo Wealth Partners announced Monday that advisors Richard Thomas Havard and Michael Scott Crouch were joining Cyndeo as vice presidents.

They are accompanied by Arlene Alexander, senior client relationship manager, and will all operate remotely and report in to Cyndeo’s headquarters in St. Petersburg, Florida.

Havard and Crouch were previously both senior financial advisors at Merrill Lynch, managing about $250 million in client assets.

Cyndeo partnered with Dynasty to launch an RIA in 2020.

(Pictured: Shirl Penney, Dynasty Financial Partners CEO and president)


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