HighTower zeroing in on $6B WealthTrust deal

HighTower Holding, the parent company of HighTower Advisors, took a step closer towards significantly boosting its RIA portfolio, announcing its "intention" to acquire WealthTrust, a Houston-based RIA aggregator, with over $6 billion in client assets.

If completed, the deal would be the largest RIA M&A transaction of the year. It also would vault the company into the top ranks of M&A players.

Initial reports of the transaction specified that HighTower was negotiating to buy 10 of WealthTrust's 12 RIAs. Asked to clarify, a HighTower spokesperson said the company "is buying the WealthTrust entity and underlying business that serves $6.4 billion in client assets." HighTower currently has $25 billion in assets under management.

HighTower plans to purchase WealthTrust with cash, utilizing a $75 million expansion of its credit facility to $245 million, led by BMO Harris and lenders Regions Bank, Fifth Third Bank and KeyBank.

WealthTrust is owned by private equity firm Lee Equity Partners, which also has an equity stake in Edelman Financial Group, whose RIA division also plans to become an active M&A player.

'PUTS THEM ON A SHORT LIST'
"It's an exciting deal because the headline AUM puts HighTower on top of the M&A game," says Matt Cooper, president of Beacon Pointe Advisors in Newport Beach, California, which itself is a major acquirer of advisory firms.

"The deal also speaks to the fact that larger RIAs with more than $2 billion in assets are demanding more attention from real money — either private equity firms, acquirers that have PE capital or banks," Cooper adds.

HighTower has acquired five small- to mid-sized RIAs since late 2015. A deal for a $6 billion company would be "transformational" for the Chicago-based company, says CEO Elliot Weissbluth in a statement.

Matt Lynch, managing partner of RIA consultants Strategy & Resources, agrees.

"Being able to deploy the capital to do this kind of deal puts them into a different segment," Lynch says. "It broadens the universe of RIA candidates who would consider their model and puts them on a short list that they might not have been on before."

The completed WealthTrust deal means HighTower will "certainly be taken seriously as an acquirer of RIAs," according to Liz Nesvold, managing partner of New York-based Silver Lane Advisors, which advised HighTower Holding.

KUHLMEY TAKES CENTER STAGE
Rising HighTower star Matthias Kuhlmey oversaw the WealthTrust negotiations.
Mike Papedis, a managing director at HighTower who was head of RIA acquisitions, left the firm last month to become a consultant. But in a press release, HighTower said it was Kuhlmey who "led" the firm's previous five RIA acquisitions, as well as spearheading its outsourcing platform business as head of global investment solution.

After completing the WealthTrust deal, HighTower needs to prove it can generate new business, Lynch says.

"Just getting bigger doesn't mean you're better," Lynch says. "How can the combination of the two firms accelerate growth? Can the business run more efficiently with the mixture of talent?"

Nesvold, who represented WealthTrust when the firm was sold by Morgan Keegan to Falcon Investment Advisers in 2006, described the latest transaction as "incredibly complex."

Benesch, Friedlander, Coplan & Aronoff also worked for HighTower as legal counsel; Evercore Partners advised WealthTrust and Fried, Frank, Harris, Shriver & Jacobson served as the firm's legal counsel.