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Emigrant Bank buying 100% of Fiduciary Network

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Emigrant Bank will become the sole owner of Fiduciary Network, an early RIA aggregator founded in 2007 by industry pioneer Mark Hurley, Financial Planning has learned.

Emigrant won a bidding war by exercising its right of first refusal to acquire the 25% stake in Fiduciary Network that it does not already own from former members of the firm’s management team.

Fiduciary Network’s 14 partner firms have approximately $40 billion in assets under management and include Evensky & Katz Wealth Management, Sand Hill Global Advisors, RegentAtlantic and Pathstone Federal Street.

Terms of the deal were not disclosed, but Fiduciary Network was known to have drawn strong interest from several bidders, including at least one major private equity firm. Under the terms of its agreement with Fiduciary Network’s shareholders, Emigrant was required to pay a 10% breakup fee above the highest outside bid.

Hurley, a high-profile industry dealmaker, will leave the firm. Karl Heckenberg, a 20-year industry veteran who is on Fiduciary Network’s board, will become CEO.

Heckenberg is also an advisor to Howard Milstein, a billionaire New York real estate mogul who is also chairman of Emigrant’s parent company, New York Private Bank & Trust.

When asked why Emigrant declined to sell its stake in the aggregator and go all in, Heckenberg replied “The Milsteins are big believers in the future of the independent RIA channel. Secular and industry trends favor these companies, and the Milsteins, as entrepreneurs and long-term investors, want to stay involved.”

Although an early force in the RIA M&A market, Fiduciary Network has not been active in the market for several years as Hurley feuded with Emigrant Bank for control of the company.

Emigrant Bank, which has already spent $155 million on Fiduciary Network firms, plans to deploy more capital in the firm, says new CEO Karl Heckenberg.

Fiduciary Network will return to the market as buyers, Heckenberg says, “but our goal is to keep the portfolio to a manageable level where we can provide individualized attention. I don’t think we’ll ever have a portfolio of 50 firms. I’d rather have 25 to 30 firms and triple their AUM versus having 50 firms with the same AUM.”

Having a bank as a parent company will be an advantage in a competitive M&A market, he maintains.

“It’s easy to forget how fickle the capital markets can be,” Heckenberg says. “We don’t have to rely on third-party funding at a time when the cost of funds is going up dramatically.”

Emigrant, which calls itself the largest privately held, family-owned bank in America, has already spent $155 million “to support the financing needs” of Fiduciary Network firms, according to Barry Friedberg, chair of the bank’s finance committee.

What’s more, Emigrant has a capital base of more than $1 billion, Heckenberg notes, and plans to “deploy additional permanent capital” to build up a platform for Fiduciary Network advisors and spur organic growth.

Fiduciary Network faces a much different RIA marketplace from the one it encountered when it launched more than a decade ago, says veteran investment banker Liz Nesvold, managing partner of Silver Lane Advisors, which represented Emigrant.

The aggregator was “a new concept when it first began,” Nesvold says, “and certainly faces more competition today. However, under the new leadership, Fiduciary Network will now be able to customize financial solutions to fit advisors' needs."

While the success of Focus Financial’s IPO contributed to the interest in Fiduciary Network, Heckenberg says the stock offering wasn’t a consideration for Emigrant.

The bank is a long-term player, he says, and his mandate is to “grow revenues, increase efficiencies and make new investments where needed.”

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