Hightower Advisors inks 5th M&A deal this year, hints more to come
Hightower Advisors likes to soften the language when it buys RIAs, describing its fifth deal of the year as a “strategic investment,” as it has for the others. But, make no mistake, Teak Tree Capital Management and its $600 million in assets under management are now part of the aggregator.
“It is an acquisition,” Hightower CEO Bob Oros says. “We tend to be a little lighter in our [press] releases because, you know, we are not taking over the operations of their business.”
Therein lies the difference. While Hightower buys firms and merges them under its own SEC Form ADV, it shares earnings with RIA owners in order to incentivize growth. Hightower described the Teak Tree deal as composed of a mix of cash and equity. Oros declined to provide further details.
Beyond that, he describes the firm’s overall strategy as a trade secret.
“It’s a little bit like Coke and its secret formula,” Oros tells Financial Planning.
That formula has helped build the aggregator up to 110 advisory businesses in 33 states. Collectively, they manage $57 billion in client assets. While Hightower bought four firms last year, it is on track to substantially exceed that number this year, says Oros who declined to predict by how much.
Majority owned by private equity firm Thomas H. Lee Partners, Hightower has said that its aggressive growth strategy ultimately aims at a liquidity event of its own. The PE firm invested $100 million in new equity capital when buying its stake in Hightower in 2017.
By splitting earnings with RIA co-founders and managers, Hightower keeps the firms focused, Oros says.
“We want to have shared risk and reward,” he says. “We are big believers that taking entrepreneurs and turning them into employees rarely works well.”
Teak Tree’s Stephen Kaye said in a statement that, while he and his co-founder Adam Deem aren’t going anywhere, it was time to bring on a partner.
“We told our clients in a recent letter that Teak Tree has gone from a child to an adult, and Hightower will attend to many of the needs of a mature business,” Kaye said. “We have taken a big step toward making sure our clients will be OK for the long term.”
Like other Hightower firms, Teak Tree will keep its own brand.
The seven-person RIA, based in Fort Worth, Texas, picked Hightower for its back-office resources, integrated technology and supportive advisor community, the statement says.
Hightower also offers its firms a trust company and an outside CIO, according to Oros.
With so many entrepreneurial small and midsized RIAs, Oros says, the aggregator buys those it can bring to scale.
“We want to embrace and amplify the independence of that advisor,” he says, adding that its firms have invested years in promoting themselves. “That’s why we don’t make them brand to Hightower.”
Hightower launched in 2008 helping wirehouse teams go independent. But, restlessness among advisors who hadn’t been able to cash out their equity stakes prompted a shift to a new strategy.
Last year it began acquiring only RIAs, according to Oros.
With an eye on a future sale, the $48B RIA wants to build enterprise value.
The RIA is the largest firm to depart the protocol in more than a year and a half.
An unexpected revelation inspired Elliot Weissbluth to launch HighTower Advisors.
“When I got here, I pushed it fully over to the RIA acquisitions side,” says Oros, who was CEO of HD Vest Financial Services before joining Hightower in January 2019. Sealing the transition, Hightower left the Broker Protocol last year, he says The protocol is an industry accord that permits advisors switching between member firms to take basic client contact information with them.
The firm’s other acquisitions this year include Wellspring Associates, a boutique planning and consulting firm with offices in Atlanta and Dallas that caters to families with an average $50 million in assets (it consults on assets, but does not manage them); Osborn Williams & Donohoe in Cincinnati, with $1.4 billion in AUM; Frontier Investment Management, with $3.3 billion in AUM and nine offices nationwide; Private Vista, with $1.5 billion in AUM and offices in Chicago and Oak Brook, Illinois.
“We have an M&A team of 15 people who do nothing but every aspect of deals from sourcing through to analytics to legal work,” Oros says. “All of that is focused on RIA acquisitions.”
The economic downturn this year is only accelerating consolidation, Oros says.
“As founding principals of RIAs have gotten older and they’ve started to think about their futures,” Oros says, they are asking themselves, “‘Do I go it alone or do I do it with someone helping me?’”