Our US correspondent delves into the story behind Bain Capital's purchase of Envestnet this week, and considers what the future holds for the tech and platform firm.

Don’t expect any “pivots or changes,” in the wake of beleaguered tech and platform giant Envestnet’s decision to sell itself to private equity powerhouse Bain Capital, said executive vice president Tom Sipp. “We’re going to do more of the same, only do it faster and better.”

But industry observers say it’s unlikely that a leading PE firm known for unsentimental turnarounds won’t seriously scrutinize what exactly is under the hood of the sprawling, underachieving company that it now owns.

“Bain will certainly restructure the firm after the acquisition,” said John O’Connell, CEO of tech consulting firm The Oasis Group. “This will likely lead to more leadership changes based on the restructuring. Bain is very likely to sell off underperforming business units, such as Yodlee. They may also consider breaking up the firm to separate the technology solution and the TAMP solution. These lines of business have very different return expectations.”

Bain will do “what private equity does,” said industry consultant Tim Welsh, CEO of Nexus Strategy. “They will rationalize the business, shed non-core assets for cash and then cash cow whatever is left – a very strategic asset management distributor.”

Although veteran tech consultant Joel Bruckenstein doesn’t think much will change in the short term, “Bain will need to fully evaluate the business and set their strategy for the future,” he said. “Hopefully they will bring in a leadership team with deep knowledge of the financial services industry.”

(There has been media speculation about a deal, as shown here.)

Tough stretch
Envestnet’s transition from a public to a private firm valued at $4.5 billion is the culmination of a difficult five years that followed the death of Jud Bergman, the company’s founding CEO and visionary.

In addition to its flagship TAMP, Envestnet owns portfolio management software vendor Tamarac, financial planning software provider MoneyGuide and data analytics firm Yodlee. 

Despite these formidable assets, the company hit a low point in 2022 when it was criticized for “dismal performance” and “management incompetence” by activist hedge fund Impactive Capital. Led by co-managing partner Lauren Taylor Wolfe, Impactive eventually got two seats on the board and Envestnet CEO Bill Crager, Bergman’s co-founder, business partner and close friend, resigned his position in February.

Despite badly underperforming the stock market over the past five years, Envestnet still can boast some impressive operational numbers: managing more than $6 trillion in assets, overseeing nearly 20 million accounts, working with more than 800 asset managers and nearly 110,000 financial advisors.

While Envestnet remains the industry’s dominant TAMP, it has been leap-frogged in total platform assets by InvestCloud in recent years and has seen competitors such as Addepar and Orion Advisor Solutions build strong product offerings and chip away at its prior dominance, noted Chip Roame, managing partner of Tiburon Strategic Advisors.

Private benefits
Going private should allow Envestnet to invest more of its EBITDA into updating its technology and integrating its platforms, according to Paul Howard, Tiburon’s chief of staff.

“Being free of the shackles and scrutiny of public ownership, and a renewed remit for growth, including the ability to better integrate its product offerings to appeal to clients, should be a distinct advantage for Envestnet in the coming years,” Howard said. “Competitors should fear a more modern, better run, Envestnet after a period of five or so years of private ownership.”

Going private “will probably help Envestnet to manage some critical decisions around divestitures and strategic focus out of the public eye long enough to recapture momentum,” agreed Mark Tibergien, the former CEO of Pershing Advisor Services. 

Envestnet is also expected to benefit from the participation of Reverence Capital, BlackRock, Fidelity Investments, Franklin Templeton and State Street Global Advisors in the deal. 

Partners and plans
Roame said he expects to see some “product collaboration” between Envestnet and those firms. Fidelity and Envestnet have already announced closer collaboration with Fidelity’s TAMP, known as FMAX, as well as a new TAMP for smaller and mid-sized RIAs. But Sipp said Envestnet is not planning to enter the custody business on its own.

When pressed about Bain Capital’s vison for Envestnet, Sipp said that with any purchase, you “always review your portfolio and priorities.” 

Industry consultant Jamie McLaughlin noted that Envestnet, as a serial acquirer, “has never been fully integrated.” As a result, “You can be sure those longstanding structural and cultural issues, and a strategic vision for Envestnet, will be resolved [by Bain] in short order.”

Envestnet’s strategy over the past 25 years, has been “a massive market share grab,” according to Pirker. After the company’s new owners review what they have, “I think three years from now the firm will look quite different."

Who will lead the retooled platform provider is yet to be decided. Current interim CEO James Fox is leaving – with a $900,000 cash bonus – after the sale closes in the fourth quarter. Sipp is the internal frontrunner, but Bain and other investors are expected to conduct an intensive industry-wide search to fill a position that will reverberate throughtout the financial services industry.