HighTower Finds a Savior
HighTower Advisors announced on Wednesday that it has negotiated an infusion of capital from private equity firm Thomas H. Lee Partners (THL), following months of rumors about a possible acquisition.
The almost ten-year-old Chicago-based amalgamation of former wirehouse brokers and registered investment advisors has been under pressure from some of its early backers to liquidate their investments, according to several sources.
HighTower did not quantify how much of the firm Boston-based THL will control, but described the investment as a “significant stake” that will allow “certain existing institutional investors” to sell their equity interests in HighTower. THL also committed to invest an additional $100 million of new equity capital after the closing, according to the announcement.
The deal is expected to close in the fourth quarter or in the first quarter of 2018.
HighTower did not indicate how the recapitalization and the liquidation of existing institutional investors may affect the valuation of the equity held by the more than 50 advisors who joined as partners. The firm in recent years backed away from its founding model of bringing in new affiliates as equity partners, and also has been pruning its ranks of top managers and recruiters.
HighTower’s hallmark investors from the brokerage industry—former Charles Schwab Chief Executive David Pottruck and former Morgan Stanley banker Doug Brown of DLB Capital—“are not selling any equity in this transaction, reflecting their continued confidence in HighTower’s future,” the firm said in a news release. Its founder and chief executive Elliot Weissbluth also is not selling equity in the transaction, it said.
“We want to be at the forefront of the changes disrupting the wealth management space, and we proactively sought out HighTower as the ideal partner,” THL Managing Director Ganesh Rao said in a prepared statement. “They are driving change and have been succeeding at it for a decade.”
The deal essentially quashes Weissbluth’s earlier plans that were dangled before prospective recruits to take HighTower public.
“The primary focus here was to fuel and accelerate our next phase of growth, and secondarily, provide liquidity,” Weissbluth told Bloomberg News in an interview on Wednesday.
HighTower’s major “institutional” and early-stage capital investors include M.D. Sass Macquarie Financial Strategies Fund, Macquarie Funds Group, Franklin Mutual Advisors, Envestnet and Offit Capital, according to the firm’s most recent ADV regulatory filing.
Weissbluth’s ongoing challenge will be convincing the firm’s equity-holding advisors to have confidence in the recapitalization, which follows a refreshing of its bank credit line in April.
“I’m sure Elliot is going out and telling them, ‘Look, I didn’t sell and I want you to be in, too,” said Jeff Spears, whose now-defunct Sanctuary Wealth Services in San Francisco had competed with HighTower to recruit brokers to become registered investment advisors.
Several advisors who joined HIghTower as partners left their equity behind in recent years and started their own wealth management firms or joined other existing ones.
HighTower currently has 191 financial advisors in 79 offices, according to its website, a total that includes 10 RIA firms purchased in March. As of June 30, the advisors were managing $30.2 billion in discretionary assets, according to HighTower’s June 30 ADV.
Thomas H. Lee Partners is no longer affiliated with its namesake founder who now operates Lee Equity Partners, a separate private equity firm. Lee Equity previously owned the WealthTrust firms that HighTower bought.