Bain Capital and Partners to Acquire Envestnet for $4.5B

Envestnet Inc., the publicly traded wealth technology provider spanning workplace retirement plans and individual wealth management, has reached an agreement to be taken private in a $4.5 billion purchase by Bain Capital and Reverence Capital Partners, the firms announced Thursday.

The deal, initially reported earlier in the week by Reuters, will include investments from asset managers active in defined contribution investing, including BlackRock, Fidelity Investments, Franklin Templeton and State Street Global Advisors, which hold minority positions in the deal.

The transaction, which values the company at $63.15 per share, has been approved by Envestnet’s board of directors and is expected to close in the fourth quarter of 2024.

Bain Capital noted in the announcement it will seek to grow Envestnet through both organic and acquisition opportunities.

“Through its deeply connected ecosystem and innovative technology and data capabilities, Envestnet has built an industry-leading platform that the largest wealth management firms, RIAs and broker-dealers rely on to power their businesses,” said Phil Loughlin, a partner in Bain Capital and its global head of financial and business services, in a statement.

Envestnet has recently noted the growing market between financial advisers and the 401(k) plan advisement business based on increased demand—a need it serves through its platforms. In November 2023, it launched a 401(k) offering for financial advisers via a partnership with Empower; its Retire Complete overlays Envestnet’s 3(38) fiduciary service and investment selection with Empower’s participant platform for use by advisers.

Smart Money

Bain Capital leading the deal is one of the most interesting parts of the transaction, says Philip Waxelbaum, a principal in Masada Consulting. Reverence and the other partners have been active in wealth management, but it is a relatively unchartered area for Bain to enter.

“The upshot is that some of the smartest money on earth has just made a commitment to the 401(k) space,” Waxelbaum says. “Bain is historically a portfolio buyer, and when they take control of an entity, they don’t typically take it over to extract value, but to realize value. … I imagine their view of Envestnet is that this is a well-positioned entity on the cusp of multiple growth areas, including being a 401(k) custodian.”

Bain Capital’s other significant commitment into wealth was a minority investment in Carson Group—but that was done through a convertible debt fund, not an equity ownership as with Envestnet, Waxelbaum notes.

The Envestnet deal comes after the firm announced in January that Bill Crager, its CEO and co-founder, would step down from the top job at the end of March to become a senior adviser with a focus on client and partner relationships. Tom Sipp, executive vice president, took over leading the firm’s business lines.

“This is a great outcome for Envestnet’s clients and employees, and one that maintains its entrepreneurial spirit,” said Crager in a statement. “Envestnet is exceptionally well positioned to continue to build a gateway to the future of financial advice. I couldn’t be more excited about the company going forward, its continued success and ability to serve more advisers—enabling them to deliver more holistic financial advice.”

Part of Bain Capital’s reasoning, consultant Waxelbaum believes, comes from its “examination of what the American workplace is going to look like over the next decade,” with baby boomers continuing to manage their wealth in retirement and the current workforce predictably leveraging up their pre-retirement commitment.

“The 401(k) business has been fragmented, and this is a step forward in scale,” he says. “There are few competitors that have the economic power to capture above the mean market share, and Bain is one of those entities.”

RIA Play

One driver for the deal, according to Wally Okby, a strategic adviser for wealth management at Datos Insights, is the market for reporting and portfolio management technology due to the growing number of advisers breaking away from wirehouses and large broker/dealers.

“As the market approaches 25,000 RIAs, some 15,000 RIAs have real choices to make with respect to their custody data integrations and wealth tech stacks,” he says.

The other area he points to is the increasing role of holistic wealth management services, including 401(k) asset advisement and guidance.

“Those who offer holistic wealth management tend to report more new client relationships, total client assets, fee-based assets, client wallet share and revenue than those who did not,” he says. “Furthermore, generally speaking, near-retirees tend to receive incomplete advice. Retirement providers have traditionally only focused on 401(k) guidance. That needs to change.”

Bain is “poised to capitalize” in both these areas, he says, including by bringing to Envestnet more flexibility in operations, a longer-term approach than public markets allow, a stronger balance sheet and access to fresh, “patient” capital.

He notes that cuts are, of course, possible in any merger and acquisition activity, but “my guess is that if we see cuts in certain areas, we will see increased investments in others. This is a growth market and, at the end of the day, a growth story for Envestnet.”

Envestnet currently services more than $6 trillion in assets for 20 million accounts. It works with more than 109,000 financial advisers and supports more than 800 asset managers via its wealth platform, according to the firm.