A new player with old money muscles its way into the RIA M&A race

There's a new major player in the ultra-competitive RIA M&A space — but one with a very familiar name.

Rockefeller Capital Management, led by former Morgan Stanley wealth management president Greg Fleming, who joined Rockefeller last year as CEO, has made a very big splash with its inaugural RIA acquisition.

Flexing its access to capital, Rockefeller has scored a major coup by poaching The Bapis Group, a $1 billion-plus practice that was one of the first breakaway brokers to join HighTower Partners 10 years ago.

"The fact that Bapis was one of Hightower’s very first advisors makes this is a significant story for both firms," says Matt Sonnen, CEO of PFI Advisers, which customizes technology for transitioning breakaways. "While HighTower has suffered other departures in the past, this one has special significance because of Bapis' history with the firm and size. It also is a great headline to get Rockefeller’s recruiting into high gear."

Fleming was hired to leverage his expertise and connections among high-end brokers and advisors and grow Rockefeller beyond its current multifamily office base, which has nearly $16 billion in AUM.

The firm has brought on Michael Outlaw, a former top Morgan Stanley branch manager and private wealth executive, to recruit financial advisors in the eastern United States and former General Electric executive Jack Ryan to head human resources.

In addition, RIABiz has reported that Rockefeller Capital is set to hire Chris Dupuy, who left Focus Financial this summer after heading the aggregators' efforts to recruit breakaway brokers. Rockefeller neither confirmed nor denied the hire, saying that it does not comment on "market rumors."

Before joining HighTower in 2008, The Bapis Group was a top producer at Morgan Stanley. The firm is headed by Michael Bapis, who works out of New York. His father and partner, Nick Bapis, has an office in Salt Lake City.

Rockefeller Capital did not disclose terms of the transaction, but industry M&A attorney Corey Kupfer thinks it may be a sweet deal for Bapis.

"The Bapis Group had strong leverage with Rockefeller," he says. "The first team on a new platform usually gets a sweetheart deal as it breaks the ice and paves the way for other teams to join."

M&A veteran Peter Raimondi, who sold Banyan Partners to Boston Private in 2014 and now heads RIA acquirer Dakota Wealth Management, called the Bapis acquisition "a great move for Rockefeller."

"It brings a big player with a stellar reputation into the business," says Raimondi, who also founded The Colony Group in Boston. "They clearly will be aggressively acquiring RIAs to build out their business on the east coast and appear to have a dual focus as a broker-dealer and an RIA.

"The question that remains to be answered is how they will integrate these firms," Raimondi added. "Will they build out an RIA sub-platform or do they integrate the RIAs into their MFO system?"

As for the impact on HighTower, Raimondi said the firm is likely to review the Bapis defection to make sure it prevents a similar departure. But the Bapis situation may also be a one-off, he added. "We don't know if it's a trend," Raimondi said. "It may be a very unique situation."

Michael Bapis did not respond to a request for an interview, but he may have provided clues to his thinking when he spoke last fall at a session on private equity at Fidelity's Inside Track conference.

"RIAs need to balance growth and scale," Bapis said, "and you can only grow so fast organically. You need funding, and private equity is where you can get it. The challenge is finding the right partner. Your visions need to be aligned, and you want them to support the business and stay out of the weeds."

HighTower has had other high-profile billion dollar defections in the past few years, including Chicago-based Joel Guth, Leo Kelly in suburban Washington, D.C. and Paul Pagnato and David Karp, who are also based in the D.C. metro area.

HighTower is in a period of transition after private equity firm Thomas H. Lee Partners bought a majority stake last year. Co-founder Elliot Weissbluth will become the firm's chairman as THL Partners searches for a new CEO and looks to fill other management positions.

Whether the Bapis move leads to more Hightower departures " will largely depend upon whether those teams buy into the future plans and eventual exit strategy of Thomas H. Lee Partners or not," Kupfer says.

The PE firm "has been working to acquire the practices of the larger Hightower partner teams to lock in that revenue and the clients in anticipation of a potential IPO or sale down the road," says Kupfer. "That is a counter-balancing force against other HighTower teams looking at outside options."

In a statement, Weissbluth thanked the Bapises "for being part of HighTower. We respect Michael and Nick’s decision and wish them well in their next chapter.”

Industry consultant Jamie McLaughlin characterized the Bapis deal as a financial transaction or an asset play as opposed to a strategic acquisition "that would strip out redundant expenses and add strategic value such as service capability or geographic location to a unified brand.

"As an asset play, the acquisition's success will depend primarily on inorganic growth," McLaughlin added. "An ideal deal structure will have incentives to both retain the producers and induce them to grow organically; something HighTower was unable to do."