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The deal follows a string of investments in large RIAs by prominent private equity firms over the past 15 months, including Genstar Capitals stake in Mercer Advisors and Lightyear Capitals stake in Wealth Enhancement Group. Long Ridge has previously invested approximately $400 million in other financial service companies.
Private equity firms are increasingly viewing financial advisory firms as investment vehicles with high growth potential, and have given the green light for firms they invest in to go out and buy other larger companies. Mercer recently bought the Houston-based firm Kanaly Trust and in March Wealth Enhancement Group purchased HHG amp; Co., a Connecticut-based RIA with over $1 billion in assets.
Indeed, the just released Nuveen/DeVoe amp; Co. RIA Deal Book notes that RIAs funded by PE firms were among the biggest buyers of wealth management companies with over $1 billion in assets under management in the first quarter of this year.
As part of the deal, Carson Wealth Management Group and Peak Advisor Alliance, a coaching and resource company for advisers, have been reorganized under a new parent holding company, Carson Group Holdings. Jim Brown and Kevin Bhatt of Long Ridge Equity Partners will join the Carson Board of Directors.
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NEW YORK--(BUSINESS WIRE)--In 2012, Hurricane Sandy flooded Brooklyn's L train infrastructure with seven million gallons of saltwater, leaving behind significant damage. The train tunnel will be closing for repairs, and nearly three out of four (71%) commercial real estate executives expect Brooklyn property values to decline during this restoration process, according to Marks Paneth's most recent Gotham Commercial Real Estate Monitor.
What's worse, since a timeline has yet to be established for the repair work, nobody knows how negative - or how long - the impact of the closure will be. The Metropolitan Transit Authority (MTA) does not expect to award a contract for the project before the end of 2016. It is still unclear how the L train will operate during the restoration.
The L train is a critical component of cross-town transportation, running ten miles from west Manhattan to southeastern Brooklyn. According to the MTA, nearly a quarter of a million people ride the L train between these two points every weekday.
Opinions among CRE executives are divided as to whether Brooklynites will move due to the closure. Although 47 percent do not believe that residents will move, 38 percent think they will.
Who is right? It depends, in part, on where commuters live and whether they own or rent.
The L train closure is especially likely to affect the Williamsburg and Bushwick neighborhoods in Brooklyn. The majority of people who live in these neighborhoods are renters, not owners. Renters are more likely to move, which may push prices down.
William Jennings, partner-in-charge of Marks Paneth's Real Estate Group, believes there may be a silver lining: "In neighborhoods like Bedford-Stuyvesant or Greenpoint, which have access to other modes of transit, prices may actually rise as renters migrate to neighborhoods unaffected by the closure."
A quarter of executives surveyed agreed that prices in neighborhoods unaffected by the L train closure could very well increase.
Mr. Jennings also pointed out that any downturn resulting from the L train closure may create buying opportunities: "It will be interesting to see where the smart money invests. I wouldn't be surprised if demand for office space increases in Brooklyn, as companies attempt to accommodate residents affected by the closure."
The survey was completed by 145 professionals working in New York City commercial real estate, including legal counsel, bankers and lenders, brokers and agents, developers, property managers and owners. The results reported here are based on completed self-administered surveys, fielded in late February and early March, 2016.
About Marks Paneth
Marks Paneth LLP is an accounting firm with more than 600 people, including over 80 partners and principals. The firm provides public and private businesses with a full range of auditing, accounting, tax, consulting, trade remediation and valuation services as well as litigation and financial advisory services to domestic and international clients. The firm also specializes in providing tax advisory and consulting for high-net-worth individuals and their families, as well as a wide range of services for international, real estate, hospitality, media, entertainment, nonprofit and government services clients. The firm has a strong track record supporting emerging growth companies, entrepreneurs, business owners and investors as they navigate the business life cycle. The firms subsidiary, Tailored Technologies, LLC, provides information technology consulting services.
In addition, Marks Paneth's membership in Morison KSi Ltd., a leading international association for independent business advisers, financial consulting and accounting firms, facilitates service delivery to clients throughout the United States and around the world. Marks Paneth, whose origins date back to 1907, is the 34th largest accounting firm in the nation and the 8th largest in the mid-Atlantic region. In addition, readers of the New York Law Journal rank Marks Paneth as one of the areas top three forensic accounting firms for the sixth year in a row.
Marks Paneth is headquartered in New York City, with additional offices in Washington, DC, New Jersey, Long Island and Westchester. For more information, please visit markspaneth.com.
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Baxter International Inc (BAX) : Financial Advisory Group reduced its stake in Baxter International Inc by 5.01% during the most recent quarter end. The investment management company now holds a total of 5,694 shares of Baxter International Inc which is valued at $259,191 after selling 300 shares in Baxter International Inc , the firm said in a disclosure report filed with the SEC on May 13, 2016.Baxter International Inc makes up approximately 0.12% of Financial Advisory Groups portfolio.
Other Hedge Funds, Including , Beaumont Financial Partners added BAX to its portfolio by purchasing 113,974 company shares during the most recent quarter which is valued at $5.2 Million. Baxter International Inc makes up approx 0.86% of Beaumont Financial Partnerss portfolio.Shinko Asset Management Ltd. reduced its stake in BAX by selling 148 shares or 9.37% in the most recent quarter. The Hedge Fund company now holds 1,431 shares of BAX which is valued at $65,139. Howard Hughes Medical Institute added BAX to its portfolio by purchasing 3,240 company shares during the most recent quarter which is valued at $147,485. Baxter International Inc makes up approx 0.03% of Howard Hughes Medical Institutes portfolio.Connable Office Inc reduced its stake in BAX by selling 196 shares or 0.48% in the most recent quarter. The Hedge Fund company now holds 40,447 shares of BAX which is valued at $1.8 Million. Baxter International Inc makes up approx 0.51% of Connable Office Incs portfolio.
Baxter International Inc closed down -0.16 points or -0.37% at $43.5 with 1,07,47,349 shares getting traded on Wednesday. Post opening the session at $43.93, the shares hit an intraday low of $43.16 and an intraday high of $43.93 and the price fluctuated in this range throughout the day.Shares ended Wednesday session in Red.
On the companys financial health, Baxter International Inc reported $0.36 EPS for the quarter, beating the analyst consensus estimate by $ 0.07 according to the earnings call on Apr 26, 2016. Analyst had a consensus of $0.29. The company had revenue of $2375.00 million for the quarter, compared to analysts expectations of $2351.22 million. The companys revenue was down -1.2 % compared to the same quarter last year.During the same quarter in the previous year, the company posted $1.00 EPS.
Investors should note that on May 3, 2016, Baxter International Inc announced a cash dividend of $0.1300. The companys management has announced Jun 1, 2016 as the ex-dividend date and fixed the record date on Jun 3, 2016. The payable date has been fixed on Jul 1, 2016.
Many Wall Street Analysts have commented on Baxter International Inc. Company shares were Reiterated by RBC Capital Mkts on Apr 27, 2016 to Sector Perform, Firm has raised the Price Target to $ 47 from a previous price target of $40 .Baxter International Inc was Upgraded by Piper Jaffray to Overweight on Apr 14, 2016.
Baxter International Inc. (Baxter) is a diversified healthcare company. The Company operates in two segments: BioScience segment which include three commercial franchises: Hemophilia BioTherapeutics and BioSurgery and Medical Products segment which include four commercial franchises: Fluid Systems Renal Specialty Pharmaceuticals and BioPharma Solutions. Its BioScience processes recombinant and plasma-based proteins to treat hemophilia and other bleeding disorders; plasma-based therapies to treat immune deficiencies alpha-1 antitrypsin deficiency burns and shock and other chronic and acute blood-related conditions and biosurgery products. Its Medical Products manufactures intravenous (IV) solutions and administration sets premixed drugs and drug-reconstitution systems pre-filled vials and syringes for injectable drugs IV nutrition products infusion pumps and inhalation anesthetics. Its products are used in hospitals kidney dialysis centers and nursing homes among others.
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With every day bringing greater media focus on investment advisors fees and conflicts of interest, its certainly not a bad thing to be a company on the other side of that trend - and thats where retirement plan advisor Financial Engines (NASDAQ:FNGN) finds itself. Although some believe the recently passed fiduciary rule didnt go far enough, I do believe it will underpin the growth story for Financial Engines over time.
The challenge, unfortunately, is that as much as I like the companys position in the advisory market, I dont particularly like its double leverage (on both investment performance and fund flows) to the performance of domestic and international equity markets. I wouldnt call myself a bear, but I also dont think market valuation multiples have tremendous room to expand. With FNGNs valuation pricing in pretty decent continued growth, I would personally prefer to wait to consider this business until a more significant/prolonged market downturn.
They Wouldnt Recommend A Leveraged ETF... But Are They One?
The growth story at Financial Engines is multi-layered - the company attracts new assets from plan participants ongoing, automatic 401(k) contributions, in addition to market growth. On top of that, Financial Engines can grow its penetration within existing sponsors (it currently only provides services to about a tenth of participants in plans with which it partners), and it can add new sponsors (such as the Wells Fargo deal its working on).
This all adds up to pretty robust long-term growth prospects, but its not entirely automatic. During the first quarter, the companys AUM declined about 1% on an organic basis, driven partially by negative returns, but also by a small net outflow of client assets.
In and of itself, I actually dont view this decline as particularly concerning. Higher-than-normal cancellations drove some of the decline - the company states that it encountered a timing issue with two sponsors who left for Nationwide and Merrill Lynch, but believes its still on track for its usual 98% retention rate. While this is obviously a factor that bears monitoring, I dont think one outlier quarter is cause for alarm.
What is more concerning is the other half of the story, and what it implies for the companys performance in a significant bear market. FNGN noted that market volatility leads to higher voluntary cancellations by plan participants who wish to pull their money out of the market.
I believe a significant downturn would lead to an even more severe version of this, which is corroborated by financial crisis-era data provided in the companys S-1 from way back when. Financial Engines would likely recover relatively quickly, but the interruption to growth would be a decided negative in light of the robust valuation multiple.
The Mutual Fund Store - Right Strategy, What About Execution?
FNGNs acquisition of The Mutual Fund Store was pricey, but as Ive discussed before, it makes strategic sense in light of where the world is going. Retirees obviously have to roll over their 401(k)s into IRAs, and Millennials seem much less likely than previous generations to stick with employers for decades (and thus generate big 401(k) balances). At either end of the age spectrum, then, the trend seems to be towards IRAs, making it important to have a strong presence in this market.
At least off the bat, though, there are a few questions about performance at the acquired business. While the company initially guided to 2016 Adjusted EBITDA of $125-130 million excluding market gains, that range had fallen a little bit as of the May 6th market performance (which wasnt all that bad). Managements original explanations on the February call didnt particularly convince me, and I do wonder if Warburg Pincus engaged in a little bit of window dressing.
Those questions aside, the moves the company is making - particularly offering seminars and holistic on-site planning beyond the 401(k) - would seem to drive stickier relationships over time. The real revenue synergies will hopefully come from rollovers staying with Financial Engines when employees move on to greener pastures, as well as picking up other accounts that employees may currently have.
Bigger Picture, Still A Strong Story
Everyone (including active managers) loves to hate on active management these days. The fees are too high, returns are too low, and so on and so forth.
Theres another angle, though. The more I look at Financial Engines, the more that I think its actually a beneficiary of these trends rather than threatened by them. Ive discussed before that most investors still value professional advice, and data from Financial Engines (as well as unbiased third parties) makes a case for advisors on a purely behavioral level - if you can simply counteract investors tendency to sell high and buy low, you create more than enough value to offset fees.
With Financial Engines fees quite low in the broader context of the advisory landscape, and investors increasingly knowledgeable (and annoyed) about the fees theyre paying to advisors, I think it has a more favorable long-term outlook than many in the space. Financial Engines professional management revenue represents a modest ~25 bps of its AUM, comparable to popular robo-advisors such as Betterment and Wealthfront, and substantially lower than traditional advisory fees, which can often exceed 1% for small accounts.
Obviously, Financial Engines model is somewhat lower-touch than many advisory relationships, and the number I cited is a blended average. The company is not going to be immune to fee pressure, but its certainly better positioned than retail stockbrokers who charge clients high fees for the privilege of being sold the banks own products. (Looking at you, JPMorgan (NYSE:JPM)!)
The recently passed fiduciary rule should hopefully do two things - first, raise investor awareness about the pervasive and rampant conflicts of interest in the financial advisory industry. Second, make it less profitable for banks to be in the business, leading to them putting their capital and marketing dollars elsewhere (similar to whats going on in fund administration and numerous other markets). These regulatory pressures, combined with ever-increasing investor attention on the fees they pay should continue to benefit low-fee, no-conflict advisors like Financial Engines.
Valuation: As Always, Heres Where I Get Hung Up
While I like the story on many levels, the big challenge for me is valuation. Even assuming some help from the market, I have trouble getting to a high enough 2016 Adjusted EBITDA target to make the current stock price ($26.50) equate to a multiple much below 12x. Making matters worse, Adjusted EBITDA excludes over $20 million of stock-based compensation, so real EBITDA is likely to be much closer to $100 million than $130 million, and the real EBITDA multiple is probably closer to 14x-15x (depending on exactly where stock-based comp comes in).
A higher-than-average EBITDA multiple can be supported in context of growth and the fact that this is not a particularly capital-intensive business, although there is some capitalized software and so on. Still, the current multiple requires pretty robust growth - which just didnt happen in Q1 on an organic basis, and may be a challenge if market volatility continues.
The risk factor is what happens if a downturn materializes - not only will Financial Engines take a hit on AUM from market movements, but also from flows, and the recently acquired Mutual Fund Store business appears to be more sensitive here (per management commentary). Falling earnings plus multiple compression could lead to a material decline in the share price. With a pretty good chunk of growth already priced in, Im not eager to take on that risk.
Despite relatively soft results early this year, I still like the long-term story at Financial Engines in light of macro trends in the investment advisory landscape. Everythings a function of price, though - and at an aggressive multiple that leaves little room for error, I think investors should be patient with this story and wait for a better entry point.
Disclaimer: Investing is inherently subjective and this article expresses opinions. Any investment involves substantial risks, including the complete loss of capital. Any forecasts or estimates are for illustrative purpose only. Use of this opinion is at your own risk and proper due diligence should be done prior to making any investment decision. Positions in securities mentioned are disclosed; however, the author may continue to transact in any securities without further disclosure.
This is not an offer to sell or a solicitation of an offer to buy any security. All expressions of opinion are subject to change without notice and the author does not undertake to update or supplement this piece or any of the information contained herein. All the information presented is presented as is, without warranty of any kind. The author makes no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results to be obtained from its use.