Sanders Morris Harris buys Edelman

FWR Staff

11 May 2005

Deal to extend high-end group's reach into the mass-affluent arena. Sanders Morris Harris Group (SMHG), Houston-based financial-service holding company, has bought a 51% stake in the Edelman Financial Center, a financial-planning firm that serves the greater Washington, D.C., area. SMHG has agreed to acquire the remaining 49% over the next four years. Parties to the deal say the acquisition strengthens SMHG’s position as an advisor to mass-affluent clients.

“Adding will help us to maintain that ability for years to come.”

Three tranches

SMHG paid $12.5 million in cash and stock for its initial stake in Edelman, according to an SMHG 8-K filing with the Securities and Exchange Commission. On the third anniversary of the purchase, SMHG will purchase an additional 25% interest in Edelman, paying 25% of a multiple between eight and 11 times Edelman’s net income in 2007. The year after that, SMHG will buy the remaining 24% of Edelman for 24% of a multiple between eight and 11 times Edelman’s net income in 2008.

Edelman’s 2004 pre-tax net income was $3.2 million on revenue of $17.7 million, adjusted for one-time expenses.

Garrison says he expects the deal to be accretive to its earnings this year as his company moves quickly to introduce Edelman’s wealth management services “across our other asset management businesses.”

Edelman aside, SMHG’s operating entities are Sanders Morris Harris, Charlotte Capital, Kissinger Financial Services, Pinnacle Trust Co., Salient Partners, SMH Capital Advisors and Select Sports Group. ATaken as a whole SMHG manages over $10 billion in client assets.

Putnam Lovell NBF Securities advised Edelman on the deal; Simpson Thacher & Bartlett acted as transaction counsel. –FWR