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Fiduciary Network, pioneering RIA M&A firm, is up for sale

Fiduciary Network, a pioneer in the RIA M&A space, is for sale, Financial Planning has learned.

Founded in 2007 by high-profile industry dealmaker Mark Hurley, Fiduciary Network has minority stakes in at least 17 independent firms, including Evensky & Katz Wealth Management, Sand Hill Global Advisors and Pathstone Federal Street.

However, Hurley has engaged in a long-standing feud with Emigrant Bank, which owns 75% of the firm and is controlled by Howard Milstein, a billionaire New York real and estate and finance mogul. The disagreement, in short, stems from Hurley soliciting potential buyers for Emigrant’s stake, without disclosing all the facts to the bank. Last year the two parties took their dispute to federal court in an arbitration proceeding.

While the arbitrator ruled that Hurley did not have to disclose certain facts to Emigrant concerning his attempts to find a new partner, the bank still retains a call option to put Fiduciary Network up for sale.

Howard Milstein 2008.jpg
Photographer: Andrew Harrer/Bloomberg News

Industry sources familiar with the deal have confirmed that Emigrant has exercised that option and retained Evercore as its investment banker to vet potential buyers. First round bids are due on Thursday July 19, according to a source familiar with the proceeding.

Emigrant, Evercore and the Hurley-led Fiduciary Network management team declined to comment on the record on the deal.

However, several executives familiar with the deal pointed to a letter written by Barry Friedberg, a Fiduciary Network board member and the chair of Emigrant Bank's finance committee, as a guideline to how Emigrant is proceeding.

In a letter to RIABiz on November 15, 2017, in response to the publication's coverage of the feud between Hurley and Emigrant, Friedberg said "all of the options" regarding control of Fiduciary Network "are in the hands of Emigrant Bank."

If the highest cash bid for 100% of the company is attractive to Emigrant, Friedberg wrote, the bank may choose to sell its ownership. If the bid is not high enough, "the bank will exercise its right of first refusal to match the bid and buy out management's ownership."

Friedberg also made clear in the letter that Emigrant likely will launch a new company similar to Fiduciary Network even if it chooses to sell.

According to the letter, Karl Heckenberg, who also sits on Fiduciary Network's board and is a 20-year wealth management industry veteran, would be the CEO of a new Emigrant-backed finance company for RIAs if the bank decides to pursue that option after a sale. For his part, Heckenberg has raised his visibility, moving to New York City and attending industry events such as Pershing's RIA Symposium in New York earlier this week.

While Hurley and his management team will be ousted if Emigrant buys 100% of Fiduciary Network and replaced by Heckenberg, it's unclear what would happen to current management if the firm has new owners.

What is certain is that the timing of the sale couldn't be better in the wake of the build-up to Focus Financial's imminent IPO.

Focus is seeking an initial share price of $35 to $39 a share, which values the RIA consolidator at around $2.5 billion.

"It's great timing for Fiduciary Network," says Carolyn Armitage, managing director for the M&A consulting and banking firm Echelon Partners. "There's a lot of interest in the space and Emigrant will benefit, especially if the Fiduciary Network sale goes first."

What's more, "there are not a lot of opportunities to get in the RIA business at scale," says an M&A executive familiar with the proceedings who did not want to be identified. "Few large diversified properties like this come to market very often."

Despite the heightened interest in the RIA business by private equity firms, the executive said PE firms may be put off by the limitations of merely receiving a dividend-like specified percentage of cash flow from Fiduciary Network's minority stake in the RIA firms with little ability to influence future growth.

A strategic buyer such as an RIA, a bank or an insurance company looking for inorganic growth and a new distribution outlet may be more likely, according to the executive.

"We knew this day would eventually happen," said Jane Williams, chairman of Sand Hill Global Advisors, one of Fiduciary Network's largest partner firms. "We're watching and waiting to see if there is a change, but our agreement [with Fiduciary Network] should not be significantly impacted and our clients should not be materially affected."

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