Beacon Pointe Advisors of California aims to become a colossal independent financial advisory firm, primarily through acquisitions

Newport Beach, Calif., Beacon Pointe Advisors bought Northstar Investment Advisors, a $ 1 billion RIA in Denver, Colorado, to advance to the league of mega-advisory firms.

The acquisition, which closed on August 16, brings Beacon $ 20 billion in total client assets. “It’s a significant deal for us in one of the fastest growing markets in the country,” said Matt Cooper, president of Beacon.

The aim is to increase customer assets tenfold in five years.

“If we have $ 20 billion now, the target is now $ 200 billion,” he said.

Denver, home to Beacon’s recent acquisition, is considered a hot market for financial advisors.

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Like many RIAs, Northstar has a sleek team of nine, all of whom will join the newly merged company, including the company’s three co-founders – Fred Taylor, Bob Van Wetter, and Charlie Farrell. The three co-founders become partners and managing directors at Beacon Pointe.

“We’re not advocating cost synergies or downsizing,” said Cooper. “Our goal is sales synergies and the growth of the company.”

Independent consulting firms are at the center of a frenzy of larger competitors and aggregators who are eating them up in record numbers, often with the help of private equity investors or Wall Street banks.

Acquisitions of RIAs hit a record high last year with 205 transactions, including 69 in the most recent quarter, according to Echelon Partners, a Manhattan Beach, Calif. Investment bank focused on financial advisory firms. Echelon predicts 255 deals by the end of the year, an increase of nearly 25% from the 2020 record. Private equity shops increasingly own stakes in RIAs, many of which are viewed as lucrative because they have small, lean organizations with high profits.

Northstar’s Taylor said that buyers of larger companies, including Hightower, Focus Financial Advisors, Mercer Advisors, and Wealth Enhancement Group, often pay multiples of perhaps 18-20 times, while smaller RIAs get lower multiples. Neither Beacon nor Northstar would disclose the financial terms of their deal.

“Denver is an interesting market because it has attracted a lot of wealth – but there aren’t many RIAs,” said Matthew Crow, president of Mercer Capital, a valuation and advisory firm that was not involved in the deal. “So a billion US dollars has a lot of upside potential.”

The Northstar deal is a sneak preview of what is to come.

“We want to find quality partners in every primary and secondary market across the country and help each of these offices grow organically and inorganically,” said Cooper of Beacon. He called Northstar’s “demographic advisory group more balanced and younger”.

Last April, Beacon acquired RIA Wealthstreet Investment Advisors worth $ 1.2 billion, a nine-person company, including five advisors, in Dallas.

On the last day of 2020, Beacon bought three smaller companies; Since then, it has acquired another five, including Wealthstreet, the largest to date, including the Northstar deal. The eight acquisitions combined raised over $ 5 billion in client assets, a Beacon spokeswoman said.

The string of deals follows in 2016-2019, when Beacon bought five RIAs, exchanging cash for equity in all cases. In previous years it has amassed a dozen smaller RIAs.
Cooper said the companies it acquired have seen annual growth rates of 20% to 30% since Beacon bought it.

Because many consultants win clients through referrals and referrals, Beacon turned to Northstar on the recommendation of Northstar CEO Farrell’s brother. Northstar co-founder Taylor said the brother knows Beacon’s CEO’s father, Shannon Eusey.

“Matt really followed us,” said Taylor of Beacon’s Cooper. Among the elements that made a sale attractive, he said, were beacons estate planning and ESG offerings. “A billion dollars [ in AUM ] is no longer what it used to be. “

The deal to be acquired was completed entirely through Zoom.

“We had never met them before [ in person ] before we agreed to the deal, ”said Taylor. “I was skeptical of the process – merging your company with Zoom – but it wasn’t that crazy.” Taylor and Cooper talked ardently about each other. “We got on really well,” said Taylor.

In March 2020, Beacon Pointe sold a minority stake in Abry Partners, a Boston private equity firm. On its first sale to an outsider, Beacon used the money to concurrently purchase Ferrell Wealth Management, an RIA in Winter Park, Florida with more than $ 460 million in client assets.

Abry owns “far less than 50%” of Beacon Pointe, Cooper said, declining to elaborate on it. The RIA has not performed dividend recapitalizations, transactions in which a private equity firm accumulates debt with a portfolio company and then used that debt to pay special dividends to itself and other shareholders.

“Abry is a minority shareholder – we are driving the vision,” said Cooper. When asked if he would consider selling another stake in a private equity firm, he said, “Sure, if it makes sense.”

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