Private equity would jump at the reliable cash flow as well as the disruptive potential of the $24 billion TAMP’s investor-facing technology.
Word is spreading that Brinker Capital is open to a strategic sale. It feels more like management recognizing an opportunity than any kind of admission of defeat.
After all, Brinker is a big deal in the world of outsourced portfolio services. They run close to $24 billion for advisors and that reported number surged a healthy 14% last year.
That kind of scale feeds confidence and the growth proves that the business is going in the right direction. They can choose their suitors. If they don’t find a good fit, they’ll simply go it alone.
But from what I’ve seen in the world of “turnkey asset management providers” or TAMPs this year, I think they’ll find a partner.
Consolidation is underway. Generic platforms are combining to expand their relevance while more differentiated players accept buyout offers in order to leverage their technological edge.
Everybody wants to get in front of as many advisors as possible. And if advisors themselves aren’t familiar with what the TAMPs do, they’re missing out on the future.
Fintech heat drives enterprise value
Brinker is one of those differentiated firms as well as one of the biggest in the newly released and expanded 2020 edition of America’s Best Tamps guide. (Free download HERE.)
The amount of assets flowing through portfolios on the platform is impressive. But what really stands out here is the company’s efforts to build a unique investor-facing interface, One Wealth Life.
It’s the kind of integrated data aggregation that really makes a difference to client psychology, taking the “unified household” rhetoric to the person at the end of the advice chain.
It only rolled out in November so there’s plenty of potential here to capture. Advisors love it.
That’s not the kind of strategic move a company makes when it’s running low on options.
Reading between the lines, it’s a lot more likely that management recognizes that they have something sizzling here and now they want the resources to take it to the world.
That means becoming part of a larger entity with heft and deep pockets. After all, some ambitions are too big to achieve alone.
And this is a great time to find that kind of partner. Private equity is practically drowning in cash right now and prospects willing to sell at a reasonable price are scarce.
Financial technology itself, meanwhile, is as hot as it gets. TAMPs in particular are in play because they’re making money as they capture assets.
Unlike a start-up app or zero-fee robot advisor, TAMPs keep a tiny proportion of the management fee in return for keeping the portfolios running.
That means private equity doesn’t just get a great story to tell years down the road. Cash flows back to the investors from Day One.
Ultimately, that cash flow feeds a better exit. AssetMark made a huge splash over the summer going public at $22. It’s a $28 stock now.
The market appreciates the company’s growth curve and valuation. The IPO went out at about 4X revenue, the high end of traditional industry exit multiples.
AssetMark management is energized and eager to expand. The company’s old private equity backers booked a healthy profit.
Running similar numbers, Brinker could easily capture $650-$750 million here for its current owners, Chuck Widger and company.
They can retire big, knowing that they got out at a good price. And the younger generation left behind can work toward bigger goals.
Scale has its privileges
While I am not thinking of any industry player in particular, there’s a strong chance Brinker will ultimately end up inside a larger financial complex.
Look at FTJ FundChoice now that Orion has bought it. The old private equity owners got a good exit. Orion gets the assets, the capabilities and the in-house systems to go head to head with other giants.
And the old FTJ crew get to apply their expertise in a bigger world. They have market leverage and all those good things that come with scale on your side: efficiency, synergy, friends elsewhere within the Orion family.
It’s a lot like what advisors get from a good TAMP relationship. We surrender a little independence when we delegate the portfolio, but we gain a whole lot of firepower and flexibility.
Reading between the lines, Brinker has been moving toward this kind of decision for a few years now. The way it handles portfolios has evolved. They’ve kept an eye on the market and pivoted to match.
I’m looking forward to seeing where they go. And in a world where a lot of little providers are eager to grab a share of the buzz, new names will keep popping up on the industry’s screens.
This business is booming. That means hitting the ground running when you’re small and targeting the commanding heights as you grow.
I think Brinker is making a run at the commanding heights. Exciting times.
