How Savant got a twofer in its latest M&A deal

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Savant Capital Management CEO Brent Brodeski sees its latest acquisition as a “density” play — with benefits.

The $6 billion RIA acquired D3 Financial Counselors, a Chicago-based advisory firm with $290 million in AUM for a combination of cash, equity and debt. Terms were not disclosed.

D3’s headquarters in Chicago and office in nearby suburban Downers Grove were the biggest draw, Brodeski, a Financial Planning contributor, says.

Savant also has an office in Chicago and is headquartered about 90 miles away in Rockford, Illinois. “We wanted a bigger presence in Chicago,” Brodeski explains. “Our primary strategy for acquisitions is to increase density in a geographical market and look for ways to add talent and expand our team.”

D3 also gave Savant an additional benefit – a presence in a new market, Santa Fe, New Mexico, that expands the RIA’s footprint beyond the Midwest and Middle Atlantic markets.
D3 founder and principal partner Donald Duncan opened an office in Santa Fe — where he has a second home — last year. Duncan says the cityis an “untapped market” for fee-only advisors, with wirehouse firms as the principal competition.

“There’s a lot of wealth in Santa Fe,” he says. “There are retirees and people who have made their money elsewhere. We found that people are coming to us without having to do much marketing.”

The Southwest wasn’t a target market for Savant, but Brodeski says he’s happy to have Duncan establish a beachhead there. The seasoned financial services veteran worked for 17 years at Northern Trust before opening his RIA in 1997.

“Don is a unique combination of an executive with leadership experience and an entrepreneur,” says Brodeski. “And his minority partner, Adam Glassberg, is in his early 30s and is everything you could want in a millennial advisor.”

Both Duncan and Glassberg will become Savant employees with equity in the company.

While Savant is not a financial buyer of RIAs, Brodeski says, the firm is committed to selective inorganic growth.

Two years ago, Savant completed a $50 million capitalization, adding new investors including Cynosure Group, a family office and private equity firm, merchant bankers Kingsway Financial Services and single family office Vlasic Group.

At the time, Brodeski said Savant's new capital structure affords "a really big checkbook" for future M&A deals.

“We hope to have two or three new beachheads in the next five years,” Brodeski says.

However, Savant didn’t need outside capital for the D3 deal, Brodeski says, instead financing the purchase with “a modest amount of bank debt and retained cash.”

But he does expect to tap his new partners if cash is need for larger purchases of $1 billion-plus firms.

“We hope to have two or three new beachheads in the next five years,” Brodeski says. “We don’t want to be in 50 states, but we’ll be happy if we’re in 7-to-10 markets around the country in ten years.”

Brodeski doesn’t expect Savant to be a high M&A bidder in the current seller’s market, but will “pay up” if the RIA has “a true alignment of interest and a shared vision [with a seller]. That would justify a premium in a frothy market.”

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D3’s main criteria for a buyer was whether the firm’s clients, employees and owners would be better off, according to Duncan.

Savant’s business development director Michael Ruane first approached D3 about a year ago, Duncan says.

“We both kicked each other’s tires pretty hard,” he recalls. “We saw how Savant delivered its services and noticed more and more similarities. At the end, we realized we wouldn’t have to change too much.”

"I wanted to have input into what's going on," Duncan says.

To be sure, D3 had other suitors, including a bank trust company, a venture capital firm and aggregator Focus Financial Partners, one of the industry’s biggest aggregators, which went public this summer.

Duncan, 62, says he “wasn’t ready to ride off into the sunset. I wanted to remain productive and generate value for the firm.”

He and Glassberg realized they “would have to teach the bank more [about the advisory business] than they could teach us.” The VC firm wasn’t a good cultural fit and Duncan felt he would be unhappy within Focus’ structure. “I wanted to have input into what’s going on,” he says.

Not only did he click with Brodeski, but he was impressed that the Savant CEO valued some of D3’s best practices.

“Savant liked the way we delivered services, particularly charging an hourly fee for projects — which they weren’t doing very much,” Duncan says. “We felt like we were adding things to the table.”

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RIAs M&A Strategic buyers Practice management Brent Brodeski Savant Capital Management