When it comes to mergers and acquisitions, never underestimate the power of capital.
Armed with a bulging acquisition war chest of $100 million in private equity cash thanks to new majority stakeholder Thomas H. Lee Partners, HighTower Advisors has agreed to purchase Salient Private Client, one of the largest wealth management firms in Texas with $2.1 billion in AUM.
Following the uncertainty and speculation about HighTower's future last year when the firm was being shopped around for a sale, the deal is considered a sweet vindication for HighTower CEO Elliot Weissbluth.
"Salient is a really good firm and the deal is redemption of a sort for the HighTower brand, which was under a cloud," says Jamie McLaughlin, a consultant for firms in the UHNW market. "Banks and wirehouses dominate the Texas UHNW market, which is fertile ground for a fiduciary, especially one with trust powers. It's a great deal for HighTower."
The Salient deal is HighTower’s largest single-office-location acquisition to date and will boost HighTower's AUM to near $35 billion. A division of Salient Partners, a large Houston-based financial services and real estate firm, Salient Private Client will be rebranded as HighTower Private Client. The firm's trust company will become HighTower Trust Services.
"This deal checks off a lot of boxes for us," Weissbluth says. "Texas is one of the most attractive wealth management markets in the country and we've been looking to get in for a long time. Salient also increases our UHNW capabilities and allows us to provide trust services directly to our clients."
HighTower will continue to use its new source of capital to pursue M&A deals, Weissbluth says.
"We will certainly look at more large firms if there is an opportunity," he explained, "but there are a limited number on the market. Modestly sized RIAs with between $1 million and $2 million in revenue and firms with AUMs between $200 million and $800 million are very attractive to us."
HighTower pays a combination of cash and equity for M&A deals, Weissbluth says.
Part of the uncertainty that surrounded HighTower centered on how many advisors would stick around following the share offering to vested shareholders after the sale to Thomas H. Lee Partners.
Despite a share price said to be around $2 a share, considered disappointing by a number of HighTower advisors, only one large team, headed by James Pupillo in Arizona, has left since the sale was completed early in the year, according to Weissbluth.
"If you are a believer in the firm, the share price is less interesting than the growth opportunity," Weissbluth says. "If you believe in the investment thesis you were happy. We have significantly increased the enterprise value with Salient. We promised the capital [from Thomas H. Lee Partners] would be used to help grow the value of HighTower through M&A, and we have delivered on that."
Industry observers agree.
"Salient gives HighTower a beneficial halo effect," says M&A expert David DeVoe, managing partner of San Francisco-based consulting firm DeVoe & Co. "It's a strategic deal that gives them a foothold in the UHNW market and opens up sub-acquisition opportunities in Texas."
In addition, Salient has "deep experience managing significant single-family multigenerational wealth and gives HighTower additional family office expertise and capabilities" notes Brian Hughes, a consultant specializing in the UHNW market and president and founder of Philadelphia-based Hughes Growth Strategies.
But industry executives also note that entering the trust and UHNW markets puts HighTower in direct competition with some of the most prestigious, well-established and well-capitalized names in financial services, including Goldman Sachs, Citigroup and Bessemer Trust.
Quote"If you are a believer in the firm, the share price is less interesting than the growth opportunity," says HighTower CEO Elliot Weissbluth.
Bring them on, Weissbluth says.
"We've had to go up against the largest wirehouse firms like Merrill Lynch and held our own," he says. "We now have the size, scale and national presence to go toe-to-toe against any firm in the industry."
Terms of the Salient purchase, which is expected to close in the third quarter of 2018, were not disclosed. Heinrich Grobler will continue to be chief operating officer the rebranded firm.