Avantax Wealth parent Blucora to sell TaxAct for $720M

Avantax's parent to adopt its name, spin off TaxAct for $720M

November 1, 2022 2:38 PM

Blucora, the parent of Avantax Wealth Management, reached a deal to sell its online tax software unit for $720 million and focus solely on wealth management.

Dallas-based Blucora, which will adopt the name Avantax, said Nov. 1 that it would make $620 million in after-tax proceeds by selling TaxAct to an affiliate of Cinven, a London-based global private equity firm. The deal announced in Blucora's third-quarter results sent the firm's shares up more than 8% by the afternoon. Avantax reported wealth profits up more than 40% for the quarter compared to the same time a year ago and a record amount of incoming client assets on the financial advisor recruiting trail.

Following an expected close by the end of the year, Blucora will turn into what it described as a "pure-play" wealth management firm. The company plans to use proceeds from the sale to pay down debt, return excess capital to shareholders, slash expenses from consolidation and invest in the wealth business. Avantax, Blucora's wealth management unit, which once went by the name HD Vest and has seen its parent company prevail in two proxy fights in as many years.

The transaction will enable the firm to zero in on being "the best provider who works with tax firms, CPAs [and] those who want to align with those firms to offer wealth management," Blucora CEO Chris Walters said on a call with analysts.

"It will be a continued focus on providing best-in-class service supporting our financial professionals with the right growth and marketing efforts to help them grow their businesses," Walters said. Amid the continuing move of client assets into advisory accounts, Avantax's RIA M&A arm will invest in more practices "which is margin enhancing for us," he added. "We believe that we can continue to execute that strategy, and with a heightened level of focus."

To see the most interesting takeaways for advisors and other wealth management professionals from the firm's third-quarter earnings, scroll down the slideshow. For a look at coverage of the firm's earnings at the beginning of the year, click here. To see a discussion of a short-lived proxy fight, follow this link. And, for a look at a proxy shareholder struggle last year, click here.

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Note: The below results relate to Avantax, which remains the wealth management division of parent firm Blucora until the close of the deal spinning off TaxAct.

Financial advisor headcount

The number of registered representatives fell by 182, or 5%, to 3,347 in the third quarter. Among the departing advisors, more than 80% of their practices generate $50,000 or less in annual revenue, according to Walters. The firm saw "fewer departures than anticipated" and kept a roughly flat headcount from the second quarter through its recruiting, he said. Avantax's RIA M&A arm completed four transactions in the period as well.

Recruiting

Newly recruited client assets of $214 million boosted the firm's total for the year to a record $1.3 billion, well ahead of the $929 million for the entire year in 2021. The number of recruited representatives nearly doubled from the year-ago period to 74 in the third quarter. In the past 12 months, the firm has added 241 with $1.6 billion in client assets.

Client assets

Slumping stocks pushed down total client assets by more than $14 billion, or 16%, year over year to $72.6 billion. An inflow of $380 million in new assets for the period represented the highest amount since the first quarter of 2018, with the year-to-date total of $810 million being the largest influx in at least a half dozen years, according to Chief Financial Officer Marc Mehlman.

Bottom line

Rising interest rates linked to cash sweep accounts and lower compensation expenses tied to falling asset values boosted the wealth management unit's profits. Avantax earned operating income of $27.6 million on revenue of $165 million, a margin of 16.7%. Compared to the same time a year ago, the unit's profits soared by 41% and margin surged by more than five percentage points. Revenue slipped by 2% year over year.

Remark

After the close of the deal and rebranding to Avantax, Blucora will "focus solely on executing our long-term sustainable growth strategy for a tax-focused wealth business which has delivered impressive results over the last couple of years," Walters said. "Looking ahead, we see many opportunities for our wealth business as a pure-play wealth management company. We will be laser-focused on further differentiating ourselves as the partner of choice for tax-focused financial professionals, tax professionals and CPAs."