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: One of the best examples of private equity supporting digital transformation in a portfolio company is Leonard Green & Partners and CVC Capital’s ownership of BJ’s Wholesale between 2011 and 2018. Digital was a key component of the value creation plan. For example, BJ’s launched a B2B eCommerce platform in 2017 that helped the company appeal to higher-paying business customers. The company also launched a mobile app around this time and hired a new Chief Information Officer as well as its first Chief Digital Officer. (Read More)

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• Why Do Smaller Buyouts Outperform Large Caps? Operations. (Read)
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Spotlight

On your mark… GTCR, a Chicago-based private equity firm with significant backing from Blackstone, acquired AssetMark, an online wealth management platform, for $2.7 billion last week, making it one of the asset manager’s largest deals to date. 

GTCR agreed to the deal’s terms in April, while rumors of the deal first started swirling in December of last year. The take-private entailed payouts of $35.25 per share to existing shareholders, the largest being Huatai Securities, a Chinese securities brokerage and trading firm that made $796 million off of its $1.8 billion sale of its majority stake. GTCR now owns a 100% stake in the firm.

Get set… Key to GTCR’s growth plan for AssetMark is implementing Lou Maiuri, the former president, COO, and head of investment servicing at State Street Bank, as the chairman and chief executive of the parent group of AssetMark, AssetMark Financial Holdings. Current president and CEO Michael Kim will continue in his roles, running the business conjointly with Mr. Maiuri. 

Also key to its growth will be the offering of new product capabilities, though it is unclear what this will entail precisely, as AssetMark and GTCR did not respond to requests for comment.

The firm had only $60 million in its 2024 budget for technological growth, up from $45 million in 2023. 

The growth strategy differs from that of GTCR’s other wealth management asset, CAPTRUST, which it acquired a 25% stake in in June 2020 implying a $1.3 billion overall valuation. At that point, CAPTRUST had $390 billion in assets under advisement. At the end of July 2024, that number surpassed $1 trillion. 

For context, AssetMark’s AUA as of 30 June 2024 is $119 billion. 

The majority of CAPTRUST’s growth strategy has focused on gaining market share nationwide. Since GTCR was brought on, the firm has made add-ons in the following markets:

• 2020: in Chesterton, IN; Michigan; and Denver.
• 2021: in Phoenix; Pittsburgh; Sacramento (x2); Boston (x2); Georgia; Greenville, SC; Chicago; Texas; New Orleans; and Nashville.
• 2022: New Jersey; the Midwest; Greenville, SC; Boston; Kansas City; Des Moines, IA; and Orlando.
• 2023: Nashville; Houston; Boston; Dallas-Forth Worth; San Antonio; Indianapolis; Sanford, NC; and Seattle.
• 2024: Houston.

The Carlyle Group was brought on in late 2023 as another minority equity investor to assist in CAPTRUST’s M&A strategy, implying a $3.7 billion overall asset valuation. 

…Go? It’s not off the table for GTCR to employ a similar M&A strategy when it comes to technological advancements for AssetMark. In the past, AssetMark has utilized M&A to expand its capabilities in turnkey asset management (Morningstar’s TAMP platform, 2024) and financial planning software (Voyant, 2021).

In fact, roll-ups and scale plays are quite common in PE wealth management deals. 

And PE interest in wealth management is rising, mainly due to the allure of steady fees the assets offer, alongside their ability to be scaled via roll-ups and add-ons. According to a report by Fidelity, private equity acquisitions of wealth management firms tripled between 2020 and 2023, now making up 78% of wealth management M&A.

However, some industry executives think private equity has hit the ceiling when it comes to the amount of M&A the sector can support. 

"So, despite these record numbers of mergers and acquisitions over the last couple years, we've only recently hit a point which I think is the steady state of M&A,” David DeVoe, chief executive and founder of consulting firm and investment bank DeVoe & Co., said in a 2022 interview with S&P Global.

“Extreme growth in M&A is something that's not super-scalable. It actually creates a risk of having some unhealthy M&A," he continued.

Indeed, 2023 saw 178 PE-backed deals, up from 171 in 2022 and 61 in 2020. The growth has slowed down, as has the average size of deals. In its January 2024 report, McKinsey noted significant market contraction of $6.2 trillion in AUA for 2022, signaling intense market competition for clients in the years to come. 

AssetMark’s path will surely be much more challenging than that of its fellow GTCR portco, CAPTRUST.

Buyout News 

Last weekend signaled the unofficial end of summer, so the pacemaking on deals picked up a good amount last week. 

For example, TPG acquired a majority stake in Altimetrik, a digital business services company, via its Asia capital platform. According to the India Economic Times, the deal values the company at $1.5 billion, making the majority stake of 60% that the firm is selling about $900 million.

Additionally, 26North Partners, the new firm launched by Apollo Global Management’s co-founder Josh Harris, inked its first deal at $1 billion (including debt). The firm bought ArchKey Solutions from One Rock Capital Partners. The asset provides electric system solutions and is based out of Missouri. 

Meanwhile, Harris’ former company, Apollo Global Management, acquired Beequip, a Dutch equipment leasing firm spun out from NIBC Bank, a Dutch asset financier. While the financial terms of the deal were not disclosed, Beequip’s portfolio currently totals €1.4 billion.

Finally, Birch Hill Equity Partners bought Rexall, a chain of retail pharmacies in Canada, and Well.ca, a Canadian online health and wellness retailer, from McKesson, an American healthcare conglomerate operating in the pharmaceutical and medical supplies spaces. Financial terms were not disclosed, though McKesson bought Rexall alone in 2016 for nearly $3 billion. 

And those are just the large-cap deals – not bad for a four-day workweek, hey?