Thomas H. Lee Buys Stake in $50 Billion Wealth Manager HighTower

  • Chicago-based advisory firm seeks to expand, payout investors
  • THL also commits to invest $100 million after deal closes

Thomas H. Lee Partners agreed to buy a stake in HighTower, betting on a wealth-management company that has been expanding with the purchase of investment-advisory firms.

The private equity firm is acquiring a "significant" piece of the Chicago-based company, which oversees about $50 billion in client assets, HighTower’s chief executive, Elliot Weissbluth, said Wednesday. HighTower was advised by JPMorgan Chase & Co. on the deal and Weissbluth declined to comment on the terms.

The deal comes as independent financial advisers, which HighTower serves, are attracting assets spurred by regulatory changes and as buyout firms look to deploy capital. HighTower is raising money to buy more advisory firms, and to make payouts to institutional investors and advisers in the firm who wish to sell their vested shares, he said.

“We’re sitting in front of a massive market opportunity, there’s this huge secular shift happening in the industry,” said Weissbluth, who founded HighTower in 2007. “The primary focus here was to fuel and accelerate our next phase of growth, and secondarily, provide liquidity.”

THL, based in Boston, is also committing $100 million after the deal closes at the end of this year or first quarter of next year to help support expansion.

HighTower houses 189 registered independent investment advisers across the U.S. and is one of the largest in the fragmented industry of RIAs. The sector has seen acquisitions reach record levels in the past couple of years and deal values for their businesses increase.

HighTower added 22 adviser teams this year, a record for the company, which has seen assets almost double in the last four years. In April, it announced its largest acquisition to date, purchasing WealthTrust.

Private equity funds have shown heightened interest recently because of the fee-revenue generated by advisers and opportunity for consolidation in the industry, said Alois Pirker, research director for the wealth management practice at Aite Group. RIAs have seen assets increase at a 10 percent median compound rate from 2012 to 2016 annually and median revenue rise 9 percent over the same period, according to a Charles Schwab Corp. report in July.

Consolidating Industry

Acquisitions in the RIA industry have surged to record levels in the past couple of years. The number of deals climbed to 94 in 2016 from 84 in 2015, and private equity-type firms made up about 20 percent of the buyers, according to a separate report by Schwab.

Deal value is also increasing, with the average size last year rising 5 percent to $1.4 billion compared with 2015 and up 64 percent since 2014, according to Schwab. In April, an investor group led by private equity firms Stone Point Capital and KKR & Co. said they would acquire a majority stake in Focus Financial Partners, a group of independent wealth managers. The deal was valued at roughly $2 billion and closed in July.

Read more about asset growth at RIAs

Private equity firms have a record amount of “dry powder,” or capital raised that hasn’t yet been invested, with that number hitting $906 billion as of May, according to data from Preqin.

“Today private equity has its most prominent role in this space that I’ve seen in the past 15 years,” said David DeVoe, founder and managing director of DeVoe & Co.

— With assistance by Matthew Monks

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