Beacon Pointe sets sights on becoming $200 billion mega firm

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Beacon Pointe Advisors of Newport Beach, California, bought Northstar Investment Advisors, a $1 billion RIA in Denver, Colorado, as it attempts a climb into the league of mega-sized advisory firms.

The acquisition, which closed Aug. 16, gives Beacon a combined $20 billion in client assets. “It’s a significant size deal for us in one of the nation’s fastest growing markets,” said Beacon President Matt Cooper.

The objective in five years, he added, is to increase its client assets 10-fold.

“If we’re $20 billion now, the goal now is $200 billion,” he said.

Denver, home to Beacon's latest acquisition, is seen as a hot market for financial advisors.

Denver, home to Beacon’s latest acquisition, is seen as a hot market for financial advisors.

Bloomberg News

Like many RIAs, Northstar has a lean team of nine employees, all of whom, including the firm’s three co-founders — Fred Taylor, Bob Van Wetter and Charlie Farrell — will join the newly merged firm. The three co-founders will become partners and managing directors at Beacon Pointe.

“We don’t advocate for cost synergies or headcount reduction,” Cooper said. “Our goal is revenue synergies and to grow the firm.”

Independent advisory firms are the focus of a feeding frenzy by larger competitors and aggregators, which are gobbling them up in record numbers, often with the help of private equity investors or Wall Street banks.

Acquisitions of RIAs reached a record-high last year with 205 deals, including 69 in the last quarter, according to Echelon Partners, an investment bank in Manhattan Beach, California, that focuses on financial advisory firms. Echelon predicts 255 deals by year’s end, a nearly 25% increase on 2020’s record. Private equity shops increasingly own stakes in RIAs, many seen as lucrative because they have small, lean organizations with high profits.

Northstar’s Taylor said buyers of larger firms, which include Hightower, Focus Financial Advisors, Mercer Advisors and Wealth Enhancement Group, were often paying multiples of perhaps 18-20 times earnings, while smaller RIAs were fetching lower multiples. Neither Beacon nor Northstar would disclose the financial terms of their deal.

“Denver is an interesting market to go into because it has attracted a lot of wealth — but it doesn’t have a lot of RIAs,” said Matthew Crow, the president of Mercer Capital, a valuation and advisory firm that wasn’t involved in the deal. “So $1 billion has a lot of upside.”

The Northstar deal is a preview of things to come.

“We’d like to find quality partners in every primary and secondary market around the country and help each one of those offices grow organically and inorganically,” Beacon’s Cooper said. He called Northstar’s “demographic of advisors more balanced and young.”

Last April, Beacon bought $1.2 billion RIA Wealthstreet Investment Advisors, a nine-person firm, including five advisors, in Dallas.

On the last day of 2020, Beacon bought three smaller firms; since then, it’s acquired another five, including Wealthstreet, its largest to date, including the Northstar deal. The eight acquisitions have collectively brought in over $5 billion in clients assets, a Beacon spokeswoman said.

The string of deals follows 2016–2019, when Beacon bought five RIAs, in all cases swapping cash for equity. In earlier years, it scooped up a dozen smaller RIAs. Cooper said the acquired firms had grown their revenue 20 to 30 times since Beacon bought them.

As many advisors gain clients through referrals and recommendations, Beacon reached out to Northstar following a recommendation from the brother of Northstar CEO Farrell. Northstar co-founder Taylor said the brother knew the father of Beacon’s CEO, Shannon Eusey.

“Matt really pursued us,” said Taylor of Beacon’s Cooper. Among the elements that made a sale attractive, he said, was Beacon’s estate planning and ESG offerings. “A billion dollars [ in AUM ] ain’t what it used to be.”

The deal to be acquired was reached entirely over Zoom.

“We’d never met them [ in person ] before we agreed to the deal,” Taylor said. “I was skeptical of the process — to merge your firm on Zoom — but it wasn’t that crazy.” Taylor and Cooper spoke of each other in glowing terms. “We really hit it off,” Taylor said.

In March 2020, Beacon Pointe sold a minority interest in itself to Abry Partners, a private equity firm in Boston. Its first sale to an outsider, Beacon used the cash to simultaneously buy Ferrell Wealth Management, an RIA in Winter Park, Florida, with more than $460 million in client assets.

Abry holds “far less than 50%” of Beacon Pointe, Cooper said, declining to elaborate. The RIA hasn’t done any dividend recapitalizations, transactions in which a private equity firm piles debt onto a portfolio company and then uses it to pay special dividends to itself and other shareholders.

“Abry’s a minority shareholder — we’re driving the vision,” Cooper said. Asked if he would consider selling another stake to a private equity firm, he said, “For sure, if it made sense.”

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