PE-backed acquisitions plow ahead with Arax buying $1.7B RIA

The advisory aggregator Arax Investment Partners is pushing on with its recent string of acquisitions with a deal for a firm managing $1.7 billion.  

Private equity-backed Arax announced Tuesday that it is adding SRS Capital Advisors, a registered investment advisor in Denver, to a division of the company specializing in pure-play advisor firms. SRS Capital's latest form ADV, filed with the Securities and Exchange Commission on May 15, lists it as having 23 employees, 17 of which have advisory functions. A press release from Arax states the firm was founded in 2004 and maintains satellite offices in Pittsburgh and Philadelphia.

Even before this addition of $1.7 billion in AUM, Arax had managed to bring its total asset count to more than $16 billion in a little over a year through a series of acquisitions. The biggest of those, announced on April 11, brought in Houston-based U.S. Capital Wealth Advisors and $8.8 billion in assets under management and advisement. 

Arax's backer for these deals has been RedBird Capital Partners, a private equity firm managing roughly $10 billion in assets. Arax is just one of many large aggregator firms that's tapping private money to pursue its ambitions — a trend that's raising eyebrows in some parts of the industry.

The perils of PE?

Speaking on Monday at the Morgan Stanley Annual U.S. Financials, Payments & Commercial Real Estate Conference in New York, Raymond James President and Chief Financial Officer Paul Shoukry said he thinks all the mergers and acquisitions driven by private equity benefit entrenched public companies. Raymond James has been publicly traded since 1983.

"That long-term value proposition is the exact opposite of the value proposition that the private equity firms are offering," said Shoukry, who's slated to become CEO next year. "They're offering investors the highest return possible in the shortest amount of time possible. And that, by definition, may require yet another catalyst for a disruptive event for advisors and their clients three to five years down the road."

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At the same time, Shoukry acknowledged that no one knows what the "end game" is for private equity. But he noted that many private owners are now paying twice as much or more even than their public rivals for advisory practices. 

That suggests, he said, that they expect public firms' willingness to pay will eventually catch up with theirs or that they will eventually be able to find other private buyers with similarly deep pockets.

"And that hasn't happened yet," Shoukry said. "And frankly, no matter which one happens, it's going to be disruptive, I think, for those advisors that are partaking in that. So that creates, again I think, a flight to quality and stability in the industry, which I'm optimistic and I know we offer at Raymond James."

But David DeVoe, the founder and CEO of the consulting and valuation firm DeVoe & Co., said anxieties about private equity may be overblown. Even if the private ownership of a firm moves from one group to another through a sale, advisors and their client won't necessarily be subjected to disruptive change.

DeVoe said mergers and acquisitions are picking up speed again in 2024 after slowing slightly in 2023. DeVoe's research shows there have been 115 industry M&A deals so far this year, up from 110 by the same point in 2023.

Many of these continue to be pushed by private equity-backed firms like Arax, DeVoe said.

"These private equity consolidators, they have capital, they have sophisticated management teams and a plank in their business model is to make acquisitions," he said.

Keeping an individual brand

Calls and emails to SRS Capital Advisors weren't immediately returned. David Simon, a managing director and founder of the firm, said in a statement: "Our partnership with Arax promises substantial improvements in service, operations and technology, enabling us to scale operations, particularly our capabilities in financing, estate and tax planning."

Haig Ariyan, the CEO of Arax, said in a statement, "The addition of SRS brings another leading wealth management firm with a value of unique and customized approaches to the Arax platform."

Ariyan, who joined Arax in 2022 from Raymond James' Alex. Brown subsidiary, has described Arax's business as being built on three pillars. Besides U.S. Capital Wealth Advisors, they included Ashton Thomas Private Wealth — which was acquired last year and works mainly with high net worth clients — and the RIA-centered division that SRS Capital is joining.

"Pure-play, advisory fee-only RIAs are a core pillar of Arax's multi-boutique strategy and SRS is a key piece of that vertical as we look to continue to scale and diversify," Mike Zabik, a partner at RedBird Capital Partners, said in a statement.

Ariyan in past interviews has emphasized his intention to allow firms to remain their individual brands even after coming under the Arax umbrella. Arax's press release said SRS Capital Advisors will continue to be led by Simon and two other managing directors: Michael Riordan and Patrick South.

Simon joined the industry in 1999 and worked at two other Denver-based firms, AXA Advisors and USAllianz Securities, before founding SRS Capital. South was at Hirtle, Callaghan in West Conshohocken, Pennsylvania, for seven years before going to SRS in 2012, and Riordan started at SRS the same year, according to SEC registration records.