Fed Up with Wall Street, Edelman Goes Private in $258 Million Deal

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Ric Edelman, one of the country’s most prominent independent financial advisors, is taking his company, Edelman Financial Group, private with Lee Equity Partners, a private equity firm, in a deal valued at $258 million.
“While there used to be benefit and value in being a public company, there no longer is,” says Edelman, a member of the Financial Advisor Hall of Fame. “We have been frustrated by the fact that as a public company, we are ignored by Wall Street. With $165 million in market cap, Wall Street couldn’t care less about us. ... As a result, our stock prices languishes and yet we are dealing with all the requirements of being in the public marketplace, with Sarbannes Oxley and Wall Street’s attention to quarterly results.”
Edelman says the transaction was designed with shareholders in mind. At a purchase price of $8.85 per share, they will be getting a 43% increase on their holdings, plus liquidity. After the sale is completed, the firm will no longer trade on the NASDAQ.
Edelman personally is expected to reap $14.5 million from the sale of 50% of his holdings in the company. After the deal is concluded, however, his equity position in the reformed company will increase, he says. He will continue as the company’s largest single shareholder, after Lee Equity, and remain in his current position as co-CEO of the company along with George Ball. He will also continue to serve as director and president of the Edelman Financial Group, as well as chairman and CEO, of the subsidiary, Edelman Financial Services. The larger company has $17 billion in AUM and the subsidiary $7.3 billion.
The deal will enable Edelman Financial to cut $2 million in immediate costs for auditors and legal expenses out of its annual budget, he says, and the savings could be used to drive expansion. Based in Houston, Edelman operates 43 offices with 500 employees nationwide.
“We anticipate accelerating our growth and increasing the number of clients we serve on a national basis,” Edelman says. “We believe that with (Lee Equity’s) experience, support and capital, they can facilitate our growth and development.”

Another prime aim of the transaction is to ensure the company’s future after Edelman and the current leadership retire – a strategic challenge facing many RIAs, large and small, around the country.
“The firm’s dependency on me is smaller than it used to be and continues to diminish,” Edelman says, “and that’s important for our clients and our staff. We have a very robust and detailed succession plan in place.”
In a statement, Thomas H. Lee, President of Lee Equity Partners, said, "The Edelman Financial Group has achieved a strong track record and is a clear leader in the independent financial advisor field. We are excited to partner with Edelman Financial's management team, and we look forward to supporting the company's continued expansion."
The merger agreement must be approved by a two-thirds majority of the outstanding shares of TEFG's common stock and by a majority of the outstanding shares of TEFG's common stock held by unaffiliated shareholders. Members of the Company's senior management, who currently own approximately 26% of TEFG's outstanding shares, have agreed to vote their shares in favor of the merger.
In addition to helming his firms, Edelman is a well-known TV and radio host. He is also a best-selling author of seven personal finance books. He has repeatedly been chosen as one of the top financial advisors in the country by multiple organizations.
Edelman says he views this sale and new partnership as a next step in the leadership role he has played within the industry.
“I think I have an obligation to help the profession advance and to help consumers of all firms increase their potential for financial success,” he says, “and I take that responsibility seriously.”

--Ann Marsh writes for Financial Planning

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