Bain Capital’s minority investment in Carson Group could be an inflection point for RIA M&A on multiple fronts.
The publicized valuation – $1bn for a firm with $17bn in assets — sets a new bar for how private equity investors assess RIAs of scale. It blows away the price Goldman Sachs paid ($750m) for 100% of the equity in $25bn United Capital Financial Advisers.
‘While I don’t know any specifics, $1bn valuation for a $17bn firm definitely sets a high bar for the next PE firm that will buy out Bain’s position in a few years — and I think it’s a safe assumption there are some extremely aggressive growth assumptions in an increasingly competitive M&A space,’ said Karl Heckenberg, the chief executive of serial minority RIA investor Emigrant Partners.
‘The market has definitely gotten overheated post Covid,’ he added. ‘I don’t think what we experienced last year is a realistic stress test on how RIAs perform in a more challenging market that we likely have ahead of us — but [private equity sponsors] took it as one.’
Bain Capital provides an institutional heft and blue-chip pedigree that few other RIAs can claim. Most active private equity investors in the RIA industry are middle-market firms or financial services specialists.
‘I see news like this as continued credibility for our industry,’ said Adam Birenbaum, the chief executive of Focus-backed Buckingham Wealth Partners. ‘There is zero doubt that smart and sophisticated investors believe that the wealth management space is one they want to deploy capital into... and they are trying to guess the winners. That’s cool to watch.’
The deal also shows just how much sentiments have changed since the depths of the market plunge in March of 2020. Carson Group was one of the most prominent RIAs that elected to pursue government assistance through a Paycheck Protection Program (PPP) loan, drawing on $4m in potentially forgivable funds.
Several other RIAs who participated in the PPP program have since taken in outside investment, including Sanctuary Wealth, Exencial Wealth Advisors and Miracle Mile Advisors.
‘The depths of the market lows in Covid made most firms understandably concerned, and PPP appeared to be a reasonable life line,’ Heckenberg commented. ‘No one knew how fast the market would bounce back.’
Bain Capital did not reveal the size of the stake it took in Carson, but earlier news coverage provides a clue. Bain has bought out Long Ridge Equity Partners, Carson Group’s earlier minority private equity backer. Contemporaneous news reports around the time of Long Ridge’s 2016 investment peg the company’s stake in Carson Group at 29%.
Founder and CEO Ron Carson (pictured) remains the majority owner of the firm.
The best analogues to Carson’s deal may be Captrust’s 2020 sale of a 25% stake in itself to GTCR at a $1.25bn valuation and Creative Planning’s 2020 sale of a stake to General Atlantic.
‘It shows that even at today’s valuations, industry demographics and growth prospects are favorable enough to justify the prices paid,’ said Brian Lauzon, a managing director at RIA investment bank InCap Group. ‘In Bain’s case, they believe the potential is there to generate a compelling return premium over public market equities over the next 7-10 years.’
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July 15, 2021 at 09:44PM
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What Carson's $1bn valuation means for the RIA industry - Citywire USA
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