Private Equity Interest in Wealth Management Illustrated by NFP Deal

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Private equity’s growing interest in wealth management was highlighted Monday when Chicago-based private equity firm Madison Dearborn Partners agreement to buy National Financial Partners for $1.3 billion.

The NFP deal follows recent private equity stakes in Genworth and MetLife broker-dealers Tower Square Securities and Walnut Street Securities.

A slew of other wealth management and financial services firms have received private equity money in the past several years, including LPL, HighTower, Envestnet, Kanaly Trust, Veritable, Avalon Advisors, First Allied Securities and The Mutual Fund Store.

“The smart money is coming in,” said industry consultant Tim Welsh, president of Larkspur, Calif.-based Nexus Strategy, “and now we’ll see how smart the smart money is. Can they wring efficiencies out of this model?”

In NFP’s case, the company has insurance and benefits businesses in addition to wealth management.

“The fact that Madison Dearborn is taking it private suggests that they envision an opportunity to creative value here,” said Steven Levitt, managing director of Park Sutton Advisors. “Personally I am dubious of some of the roll-up models where there is little to nothing in the way of synergies across firms. I suspect we will look to Madison Dearborn to foster more collaboration and synergies between firms in order to create an entity with more true enterprise value.”

The Madison Dearborn acquisition may also revive NFP’s aggregation strategy, said industry observers.

“This will give NFP access to more cash, and another arrow in their quiver to buy firms, as they did earlier in their history,” said Alois Pirker, research director for Boston-based Aite Group. “The deal could be a catalyst to more consolidation in the market, and adds another player to take seriously in the roll-up game.”

The deal could “revive acquisition energy for NFP,” agreed industry consultant David DeVoe, managing partner at San Francisco-based DeVoe & Co. But DeVoe also noted that wealth management is “the smallest component” of NFP’s three lines of business. “Because NFP is not a pure play, making comparisons to other consolidators has some challenges,” he added.

The deal is also a vote of confidence for the value of practice management, said Welsh, noting NFP’s purchase of the practice management –oriented firm Fusion Advisor Network last summer.

"We look forward to working closely with NFP’s leadership team as it continues to build a strong diversified business,” Vahe Dombalagian, Madison Dearborn managing director said in a statement. “We fully support NFP's focus on providing high-quality and value-added services to all of its clients, including corporations, through a more unified brand across its business segments."

Jessica Bibliowicz, NFP’s chairman and CEO, will step down in May, when Douglas Hammond, president and chief operating officer, is expected to be appointed CEO, the company announced.  

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