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Wealth Enhancement Group got multibillion-dollar valuation in PE deal

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The private equity recapitalization of a firm that has emerged in recent years as one of the most active and fastest growing RIA consolidators gave the company a multibillion-dollar valuation.

A PE fund affiliated with publicly traded investment manager Onex Corporation paid $226 million for “economic ownership” of 11% of Wealth Enhancement Group, according to the Toronto-based firm’s Nov. 12 earnings statement. The minority stake purchased by the RIA consolidator’s second capital backer alongside TA Associates values Wealth Enhancment’s equity at $2.05 billion. The investment by Onex Partners V Group included $54 million contributed by its parent firm, a note in the earnings disclosure states.

Representatives for Wealth Enhancement Group didn’t immediately respond to requests for comment on the first disclosure of the deal’s terms since the parties announced it in August and closed the transaction in September. Representatives for Onex declined to comment.

At a total enterprise level, the valuation ran to roughly $3 billion, according to sources cited last month by the industry news outlet Citywire.

The high valuations of RIAs are helping to drive the record volume of M&A transactions, which are on pace to set a record for the ninth straight year. Minneapolis-based Wealth Enhancement has topped $52 billion in client assets after reaching 13 deals in 2021, including the acquisition last month of an RIA with $5.2 billion. The baker’s dozen acquisitions announced this year tied with Focus Financial Partners for the most any wealth manager in 2021 by the end of the third quarter, according to investment bank and consulting firm Echelon Partners.

The investment in Wealth Enhancement by Onex’s private equity arm was the second-largest deal of the period in terms of the seller’s client assets and “one of the most significant transactions by a private equity firm this quarter,” according to Echelon’s deal report. Wealth Enhancement has grown to more than five times the client assets it managed in 2019.

“Wealth Enhancement Group has been one of the most active strategic acquirers in the space so far this year, and the capital infusion from Onex will recapitalize the M&A warchest and provide them the funds necessary to continue their rapid buying streak,” the report said.

Still, the value of Wealth Enhancement in the deal with Onex and TA, a firm that has backed the RIA consolidator since 2019, displays how much the valuations of RIAs and wealth managers are rising. The equity quote for Wealth Enhancement represents a comparable number to the reported purchase prices of Advisor Group in 2019 and Cetera Financial Group a year earlier. At the time of their deals, each of the other wealth managers had hundreds of billions of dollars more client assets than Wealth Enhancement and thousands more advisors. In addition to being a multicustodial independent RIA with a limited purpose broker-dealer, Wealth Enhancement operates as an office of supervisory jurisdiction under its affiliation with LPL Financial.

“Wealth Enhancement Group has established a leading national wealth management platform with a client-centric approach and a culture of striving for continuous improvement in everything the firm does, which has driven positive outcomes for clients and the business,” Onex Managing Director Todd Clegg said in a statement when the deal was announced this summer. “We’re confident that WEG remains uniquely well-positioned to keep growing, both organically and by continuing its track record of well-executed acquisitions.”

Financial services portfolio firms like Wealth Enhancement comprise 27% of Onex’s gross PE capital, at $1.50 billion out of a total of $5.62 billion, according to the firm’s supplemental earnings disclosure. It has spent more than a third of its PE capital on the services industry, with other investments in industrials, consumer and retail, and healthcare. With a track record of 37 years, Onex has completed about 740 acquisitions with a combined value of $101 billion.

This is a breaking news story. Check back for updates following Onex’s 11 am EST earnings call.