Private equity firms are on the prowl for U.S. listed financial technology companies engaged in the wealth management sub-industry. Private equity mammoth Bain Capital, LP signed a deal to acquire Envestnet, Inc. (NYSE: ENV), a Berwyn, Pennsylvania, financial software maker, for $4.5 billion, or $63.15 per share. Envestnet provides technology and automation software for financial advisors and banks. Also participating on the buyside are Reverence Capital, BlackRock Inc., Fidelity Investments, Franklin Templeton, and State Street Global Advisors (part of State Street Corporation). BlackRock recently acquired alternatives data company Preqin. Envestnet oversees over $6 trillion in assets and watches over nearly 19.6 million accounts. Former Envestnet CEO William (Bill) Crager, a former employee at Rittenhouse Financial Services) had forecasted in 2022 that Envestnet could have as much as $10 trillion of assets under its administration by 2025. Crager co-founded Envestnent with the late Judson (Jud) Bergman in 1999. Crager took over the company following Bergman’s death in 2019. Bergman (aged 62) and his wife Mary Miller died in a automobile accident in San Francisco. Bergman was the Head of Mutual Funds at Nuveen Investments, before co-founding Envestnet. GTCR and Advent International had expressed interest in Envestnet earlier and in 2022 there were rumors the firm could be taken private.

Envestnet is a candy shop of products including Yodlee, Tamarac, and MoneyGuidePro. Envestnet experienced negative US$ 19.9 million in free cash flow in the first quarter of 2024 versus negative free cash flow of $61.7 million in the first quarter of 2023. The financial services company has US$ 317.5 million on convertible debt maturing in 2025 and US$ 575 million of convertible debt maturing in 2027. The company experienced an increase in its net debt leverage ratio in a time of higher interest rates. This ratio is calculated by taking net debt divided by adjusted EBITDA for the trailing 12-month period. For March 31, 2024, the net debt leverage ratio was around 3.1x versus lows of around 2x in the first part of 2021. The data aggregator company claims that approximately 75% of their asset-based revenue is billed quarterly, in advance. The company’s wealth solutions unit has been growing recurring revenue, while the recurring revenue of the data and analytics unit has been shrinking. For example, the data and analytics unit revenue generated $182.847 million in 2022 versus $151.739 million in 2023. In March 2024, William Crager stepped down as firm CEO. In 2023, Envestnet added three new board members to the company’s board of directors to settle a challenge by Impactive Capital, an activist investor. Impactive Capital had prodded Envestnet to cut costs.

Controversial Consumer Data Business – Billions of Transactions

Envestnet also owns Yodlee, which is a major U.S. aggregator of consumer financial data. Yodlee sells the bank and credit card transaction data of tens of millions of Americans to investment and research firms. In 2020, three members of Congress demanded the U.S. Federal Trade Commission (FTC) investigate Yodlee to see if they were breaking the law. Envestnet acquired the listed company Yodlee in deal that had an enterprise value of $590 million. The purchase price was around $660 million. For Envestnet, Yodlee has been an albatross for Envestnet.

Deal Terms

Under the terms of the agreement, which has been unanimously approved by the Envestnet Board of Directors, Envestnet shareholders will receive $63.15 in cash for each share of common stock they own. The transaction is expected to close in the fourth quarter of 2024, subject to the satisfaction of customary closing conditions, including receipt of approval by Envestnet’s shareholders and required regulatory approvals. Upon completion of the transaction, Envestnet’s common stock will no longer be publicly listed, and Envestnet will become a privately held company.

Deal Advisors

Morgan Stanley & Co. LLC is acting as exclusive financial advisor, and Paul, Weiss, Rifkind, Wharton & Garrison LLP is acting as legal counsel to Envestnet.

J.P. Morgan Securities LLC is acting as lead financial advisor, and Ropes & Gray LLP is acting as legal counsel to Bain Capital.

RBC Capital Markets, BMO Capital Markets, Barclays, and Goldman, Sachs & Co. LLC provided committed debt financing for the transaction and financial advisory services to Bain Capital. Funds managed by Ares Management, funds managed by Blue Owl Capital and Benefit Street Partners also provided committed debt financing for the transaction. Ares Capital Management LLC has committed, pursuant to the preferred equity commitment letter dated July 11, 2024, to capitalize an entity that directly or indirectly owns all of the equity interests issued by parent company with an aggregate preferred equity contribution in an amount of $200,000,000, on the terms and subject to the conditions set forth in the preferred equity commitment letter.