When it comes to M&A, most RIAs likely have more interest in the story behind the story — not that a deal happened, but how it happened.
Here’s a good example: Late last week brought news that Choreo had agreed to acquire Enso Wealth Management, a California-based firm with approximately $1.8 billion in AUM. In the six years leading up to the deal, Enso had grown to include 13 advisors and nine support staff. Once the agreement is completed, they’ll all work under the Choreo brand.
The agreement marked Choreo’s first acquisition since its launch — backed by PE firm Parthenon — as a standalone organization earlier this year, and it’s just one in a series that Choreo CEO Larry Miles expects to announce in the coming months. With the addition of Enso, Choreo’s AUM gets a boost to about $13.5 billion.
Now, here’s the bit behind the news that wouldn’t ordinarily be mentioned. Jessica Polito, of Turkey Hill Management, was integral to the deal. She represented Enso and played a role that would typically have been played by an investment bank — but she did it in a far more cost-efficient manner.
In short, she saves participants hundreds of thousands of dollars by charging a flat retainer without an investment banker’s success fee attached. Such fees are typically 1% of a deal’s value and are paid in addition to a bank’s monthly retainer (or retainers are credited against success fees).
“My retainer fees are comparable to what you would pay to a traditional investment bank, so the delta is the success fee,” says Polito.
What motivates Polito is the people part of the business. After over a decade as an investment banker providing M&A advice to the wealth and asset management industries, she realized that there had to be a better way for the people who built these businesses from the ground up.
“Business founders and entrepreneurs have a tremendous amount of emotion invested in the businesses they start, and if you can’t empathize with that and align with their best interests over your own, you’re missing the point,” Polito says.
Underlying the establishment of her own firm was Polito’s desire to offer an alternative to investment banks. It also helped that there was a prospect who refused to take no for an answer when she said she was done with investment banking.
“Wealth management firms aren’t like some big manufacturing business,” says Polito. “Their asset is trusted relationships with other people and taking care of clients. When they decide to sell the business they built, an investment banker will try to get them the best deal, but also to maximize that success fee. There’s misalignment from a cultural perspective. Is an investment banker telling you to sell to a certain firm because it’s the right fit, or because they’re paying the most money? Are you being advised to close a deal because it’s the best option, or because the banker wants the biggest success fee?”
With her transactional experience, Polito is part of nascent movement of specialist advisors — think valuation work or transition management — to advisors in areas typically covered by larger firms. Reaction from both buyers and sellers has been “overwhelmingly positive,” she says, and there are a handful of additional deals in the pipeline for Turkey Hill.
“Sellers say they’re happy that they don’t have to hire an investment bank, and buyers are happy because they now have a resource for self-sourced deals where the seller doesn’t want to hire an investment bank for any number of reasons. Either way, both parties need someone to help them get over the finish line,” Polito says.