• Bain investing in Envestnet from Fund XIII
• Deal comes as part of a wider bet on wealthtech
• Potential for add-on acquisitions in areas including generative AI

Bain Capital had been building its investment thesis in the so-called wealthtech space for four years, underpinned by a belief that, amid the increasing adoption of technology, independent wealth channels were poised for secular growth. Behind the scenes, Bain’s dealmakers had identified one potential investment that they dubbed their “white whale.”

Envestnet, a wealth management software provider to the asset management industry, catered to more than 109,000 financial advisors to manage over USD 6trn in assets. Its products, including financial planning software MoneyGuidePro, were precisely the mission-critical technology that Bain was seeking.

“We named it Project Pequod,” said Colin Motley, a managing director in Bain’s technology, media and telecom vertical, referring to the name of the ship in Herman Melville’s Moby Dick.

Last month, Bain, alongside co-investor Reverence Capital, a New York City-based sponsor that focuses on financial services, and strategic partners BlackRock, Fidelity Investment, Franklin Templeton, and State Street Global Advisors, agreed a deal to take Envestnet private. Subject to regulatory and shareholder approval, the deal will close in 4Q24.

Envestnet was acquired for USD 4.5bn, or 16.6x its LTM adjusted EBITDA.  The USD 63.15 per share offer for the Berwyn, Pennsylvania-based company represents an 11% premium to its closing price on 15 April, a day before news of its potential sale first emerged.

The equity check for the deal is just over USD 2.3bn, according to a regulatory filing. A debt financing package consisting of a USD 1.76bn first-lien term loan facility, a USD 375m second-lien term loan facility, and a USD 375m revolving credit facility is being provided by Bain’s advisors RBC Capital Markets, BMO Capital Markets, Barclays, and Goldman Sachs, alongside Ares Management, Blue Owl Capital, and Benefit Street Partners.

Bain is investing in Envestnet from its thirteenth North American flagship fund, which closed in April 2021 on USD 11.8bn. The deal comes hot on the heels of the Boston-based sponsor’s USD 5.6bn take private of cloud-based education technology platform PowerSchool, announced in June, also from Fund XIII. In late June, Bain Capital disclosed plans to raise Fund XIV, with no target specified, according to a regulatory filing.

Add-on strategy

The asset management industry is seeing increased interest from private equity as wealth managers look to scale their offerings, tap into a growing market of high-net-worth individuals, and expand their technology capabilities amid fierce competition.

Deal volume in the sector remains relatively flat. Year-to-date there have been 209 deals in the North American asset management industry, worth a combined USD 23.3bn, according to Dealogic data. That compares to 241 asset management deals valued at a combined USD 20.6bn in the same period last year.

Bain is scouting for future add-on opportunities for Envestnet in areas such as generative AI. Potential investments could include advanced wealth management technologies such as direct indexing and tax overlay.

“We will prioritize technologies that add value to financial advisors and can complement the company’s existing capabilities, many of which may involve technology leveraging advancements in GenAI,” said Motley, noting that the focus will be on North America.

The sponsor also sees an opportunity for “strategic expansions” into adjacent markets like custody or alternative assets to further leverage Envestnet’s technology platform.

Looking ahead, Bain sees plenty of opportunities for further investment in a sector that is poised for growth.

“In many segments, the promise of fundamental disruption of the structure of financial services markets is overblown given many of them, including wealth, are appropriately regulated, characterized by steady, persistent trends as opposed to rapid disruption, and involve important roles for human interaction,” noted Motley.