The RIA Replacing M&A Bankers and Sourcing Billions in Deals With Data Science

With $11.8 billion in client assets, Wealth Enhancement Group is leaving little to chance as it aggressively expands.

(Illustration by RIA Intel)

(Illustration by RIA Intel)

A few years ago, Jeff Dekko was at an M&A conference when he made a startling admission: his firm Wealth Enhancement Group, an independent wealth management firm that oversees $11.8 billion in client assets, had a hit list of only 76 companies that it was interested in buying.

“At the time everyone looked at me like, ‘You’re nuts. There are 32,000 state- and federally-chartered RIAs and you have [a list of] 76?’”

Little did Dekko’s skeptics know that there was a method behind his apparent “madness” that would help his firm achieve impressive growth.

Between last July and year-end, Minneapolis-based Wealth Enhancement Group closed on three firms worth over $1 billion. In 2019 alone, Wealth Enhancement Group added $3.2 billion through M&A – a figure it plans to exceed this year as part of its focus on growth, with the goal of acquiring firms with between $5 and $7 billion of client assets.

Bigger transactions are naturally more complicated, with more people involved. Under Dekko, who became chief executive in 2003, the firm aimed to be more thoughtful about its strategy. Wealth Enhancement Group had always been a marketing-based firm, so it employed one of the first rules of marketing: define your target.

In 2015, executives contacted Julie Cooling, the founder and chief executive of RIA Database, which has aggregated data on 200,000 advisors and 38,000 firms. It used the data to put together a new M&A strategy based on firms that showed characteristics that suggested they might fit well with Wealth Enhancement Group.

From these wide search parameters, Wealth Enhancement Group was able to whittle down an unwieldy universe to a list of 76 firms that exhibited characteristics that were complementary to their business. The plan was to not rush in with a buyout proposal but rather cultivate relationships that could reap longer-term benefits.

“We start by getting to know them,” Dekko says. “Our goal is to be their first call.”

Dekko realizes that firms commanding upwards of $1 billion in client assets, may have an investment bank first on the shortlist when they decide to sell. “But we know that we’re on that shortlist,” he says. “And even if an investment bank is involved, the fact that we already have a relationship with these people and the message is consistent has helped tremendously.”

This strategy caught the eye of private equity firm TA Associates, which announced in July that it was acquiring a majority stake in Wealth Enhancement Group using funds affiliated with Lightyear Capital LLC. The firm’s growth plans were key to the deal. “Lightyear’s funds invested in Wealth Enhancement Group with the view that smaller registered investment advisors would benefit from the centralized planning, marketing and operational resources afforded by the company’s scale,” Mark F. Vassallo, Managing Partner of Lightyear, said at the time.

Vassallo commented on the firm’s 10 most recent acquisitions that resulted in a 150% increase in assets, six new markets entered and a doubling in the number of offices and advisors.

Dekko’s strategy for growth includes closing two further deals by the end of the first quarter, two in the second quarter and a further two or three in the second half of 2020: “Which means we will be closing in on 10 percent of my list of 76 firms.”

Cooling says RIAs use data for more than just making acquisitions. Data help RIAs identify ideal candidates to work with, be it to partner on a fiduciary status, to provide white label solutions, and to share technology. Some firms use data to identify candidates during succession planning.

“For each firm it’s a puzzle,” Cooling says. “How do you bring the talent to transition the business over time? We provide the data and information to identify those targets and save them time.”

In each case, search parameters will differ. The database can target firms based on size, growth, clients, assets and products offered, including whether they have hybrid or alternative investments. Data can identify what kind of clients match best, what kind of business they focus on, plus the type of organization.

However, Cooling believes the data can only get investors so far: “You can do outreach digitally but it’s about building a relationship that aligns with the partnership. There’s nothing that beats a face to face meeting.”

Crucially, for Wealth Enhancement Group, the data revealed the location of firms that have a product mix that complements the firm doing the search. “We’re not buying firms just to get big, we’re actually merging with these firms as a way to enter into a market area,” Dekko says.

The firm has concentrated its buying in the New York-New-Jersey-Connecticut tri-state area, including the acquisition of RCL Advisors, a New York-based RIA with $1.4 billion in client assets in November. It has also sought firms around Baltimore-Washington, including the acquisition of Planning Solutions Group LLC, an independent financial advisor based in Fulton, Maryland, with more than $1.3 billion in client assets, in July.

“You can see, we’re working a very methodical approach down the East Coast. There’s a lot of interaction, a lot of leverage that we get with that,” Dekko says. “Ultimately, it’s a way that we can create the feeling of one firm.”

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