You’re reading Value Add’s weekly briefing, the leading newsletter for the operating side of private equity. Here’s what you need to know this week, from insights for PE-backed executives and portco news to recent buyouts and investment trends. 

Insights

Chart of the Week: Macy’s stock fell 12% on Monday after the company announced it was no longer in talks with private equity about a potential buyout. Private equity firms have grown cautious of consumer businesses. Rising credit card debt, higher-than-expected inflation, and eroding barriers to entry in eCommerce have made consumer goods and retail companies risky sectors for investment for buyout firms. According to our March report, consumer businesses accounted for 15% of PE-backed exits in 2023, but only 5% of buyouts.

More Insights

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• Europe Private Equity Report 2024 (Read)
• Consumer Sector Private Equity Report (Read)
• Private Equity Case Study: BJ’s Wholesale (Read)
• Energy Sector Private Equity Report (Read)

Spotlight

What’s the deal? Bain Capital and Reverence Capital will take Envestnet private in an acquisition valued at $4.5 billion. While the two firms have led the deal, it is not clear who will hold what percentage of share and what the equity breakdown will be between both them and the additional minority shareholders in the consortium: BlackRock, Fidelity, Franklin Templeton, and State Street. 

It is also not clear how much capital each firm has mobilized for their respective shares. Nevertheless, shareholders expect to receive $63.15 per share in cash with the transaction totaling $4.5 billion. The acquisition will be financed with $2 billion of debt, with a portion of that financing coming from large banks (the Royal Bank of Canada, BMO, Barclays, and Goldman Sachs), and another coming from a loan backed by a consortium of private-credit lenders (Ares Management, Blue Owl, and Franklin Templeton-owned Benefit Street Partners). 

The deal is on track to close in Q4 2024, pending regulatory requirements and shareholder approval. 

A deep dive into Envestnet. The firm was founded in 1999, making it a rather mature acquisition target, especially when it comes to fintech. The firm provides wealth management software to financial advisors and institutions, managing over $6 trillion in assets and 20 million accounts while supporting 109,000 advisers.

The firm has been publicly traded since 2010. Let's take a closer look: 

• 2010: Envestnet IPOs on the NYSE, raising $63 million at $9 per share. 
• 2012: Envestnet acquires Tamarac, a portfolio management technology provider for RIAs, for $54 million.
• 2015: Envestnet acquires Yodlee, a cloud-based analytics company that specializes in financial services, for $660M. Envestnet also acquires Upside for an undisclosed amount and Finance Logix for $24 million in cash and $6.5 million in stock. Both are investment advice-centered platforms.
• 2018: BlackRock invests $123M into Envestnet for a minority, 4.9% equity stake.
• 2019: Envestnet’s co-founder and CEO, Jud Bergman, dies in a car crash. His co-founder, Bill Crager, takes over the position.
• 2020: Envestnet and Yodlee are sued for data privacy violations, to much controversy. Yodlee’s legal issues are still ongoing. 
• 2024: Bill Crager announces in April that he will step down from the role of CEO, with chairman of the board James L. Fox replacing him in the interim. Meanwhile, Envestnet reports for Q1 that its total revenue is $345.0 million, up 9% year-over-year, while its asset-based recurring revenue was up 15% and represented 62% of total revenue for the quarter, compared to 59% of total revenue for Q1 2023. Also, adjusted EBITDA had increased 30% to $70.4 million for the quarter, compared to $54.0 million for Q1 2023.

What will the future of Envestnet look like? 2023 was a tough year for Envestnet. The firm intentionally reduced its EBITDA that year to “move data to the cloud, integrate the technology pieces, and to choose the next generation of leadership for the company,” according to former CEO Crager, which caused the firm’s stock price to plummet -20%.

Meanwhile, in 2023 the firm took a $190 million tax write-off for Yodlee, a poorly performing data aggregation business the firm bought in 2015 that analysts now largely call “obsolete.”

Moving forward, one expert – registered investment advisor Doug Fritz – thinks it’s time for Envestnet to drop both Yodlee and Taramac to focus on its more profitable lines of business – even if those sales happen at a loss.

Bain reportedly plans to support Envestnet's development both organically and via acquisition, with an emphasis on upgrading its platform with greater functionality. Expect the company to amplify its reach and adaptability of its platform by offering clients more customized products.

Bain and Reverence Capital did not give timely responses to requests for comment.

Buyout News 

Vista Equity Partners, TCV, and KKR have bought a majority stake in Nasuni, a cloud data platform. While the sizes of the stakes are undisclosed, the transaction places Nasuni’s overall market valuation at $1.2 billion. Nasuni boasts a consistent 30% growth rate and a user market expanding over 850 companies and 70 countries.

Blackstone has finally bought Hipgnosis for $1.6 billion, or $1.24 per share. They’re the winner in a well-publicized bidding war against Concord Music, backed by Apollo Global Management. Said bidding war drove Hipgnosis’ stock price up about 80 percent. Concord nearly placed the winning bid in April for $1.4 billion ($1.16 per share).

The Carlyle Group is looking to buy Vantive, the kidney care unit of Baxter International, for $4 billion (including debt). Baxter announced plans to spin off the unit and take it public in 2023, though launched the possibility of a PE buyout in March 2024. Carlyle also owns medtech companies QuidelOrtho and Medline and has an outsized operations experience when compared to its direct competitors.

CD&R and Permira are looking to take Exclusive Networks, a French cybersecurity company, private. They will accomplish the transaction by buying out various minority shareholders for €2.2 billion ($2.4 billion), or €24 ($26.15) per share. It’s nowhere close to the $23 billion Google is looking to pay for Wiz, but it’s another example that shows how hot cybersecurity is right now for investors.