United Capital, one of the nation's largest RIAs with about $22 billion in AUM and 92 offices, is seeking new external investors, the firm’s CEO tells Financial Planning.
“We’ve had our investors with us for a very long time, we’ve done really well and we need new partners,” Joe Duran says in an interview. “We want to have a single partner,” which he thinks will most likely be a private equity firm.
The firm’s major outside shareholders now include Australian financial services firm AMP, private equity firm Grail Partners and investment firms Bessemer Venture Partners and Sageview Capital. None holds more than a 16% stake in United, according to Duran.
Private equity investors typically seek to cash out of their investments after six or seven years, and some of United’s shareholders have held their stakes for over 10 years. In addition to the investing timeline of those firms, United’s growth and increasing focus on its FinLife technology offering spurred the decision to recapitalize, Duran says.
“[The outside stakeholders] can return capital to their investors, and we can bring in a new investor,” Duran says.
United has hired New York investment banking firm Moelis. Since 2016, United has spent nearly $30 million on FinLife, according to Duran. It will need further intensive funding to pay for development, upgrades, sales, service, training and support.
United’s move is well-timed, says Mark Casady, chairman of fintech financing firm Vestigo Ventures and a former CEO of LPL Financial.
“There’s a lot of demand for properties," Casady says. “It’s a very good time to go to market. They will get a new valuation, take out the old investors and bring in new capital, with a large private equity firm being the most likely buyer.”
“It’s a very good time to go to market,” says former LPL CEO Mark Casady.
An investment banker not working with United who asked not to be identified agrees the company's move is likely to be well received, especially in an industry that continues to attract capital investors with deep pockets.
The marketplace is already quite familiar with United and “valuation expectations are very high,” according to the banker.
Aite Group analyst Alois Pirker says potential investors “will ask questions about what the company’s capital needs actually are.” And executives at several of United’s competitors, speaking not for attribution, contend their rival is in fact capital constrained, though Duran insists that's not the case.
“We have no net debt,” he says. “We have more cash than debt outstanding. We have $35 million in cash and $30 million in debt. We have zero financial leverage. That will change with the next round of acquisitions because we want to use our capital more efficiently and will have a small amount of additional debt as operating leverage.”
Duran, who has championed a concept of planning he calls
The ideal investor would “cut a check for hundreds of millions of dollars, and say, ‘Keep on doing what you’re doing and let us help you do it quicker,’ ” Duran says.
A new investor would, ideally, be a firm that would take a big stake in United, “cut a check for hundreds of millions of dollars, and say, ‘Keep on doing what you’re doing and let us help you do it quicker,’ ” Duran says.
The entrepreneur is no stranger to selling a financial services firm. As president of Centurian Capital Group, he helped sell the company to a unit of General Electric Capital in 2001 for somewhere between $75 million and $100 million at age 34.
United's plan follows that of at least two other pioneering advisory firms that recapitalized in the last two years to fuel growth.
Regarding the potential of one day tapping the public markets, Duran says, “If I have to guess where we’ll end up in valuation, we’re probably at the lower levels of where an IPO would make sense. If we were to IPO, I’d like to do it as a multibillion company and I know we’re not there today."
