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New deal frees WealthTrust to chart its own course

Thomas Coyle

14 November 2006

Wealth-advisory holding company plans to step out of its regional footprint. Private-equity firm Circle Peak Capital and junior capital provider Falcon Investment Advisors have backed the management buy-back and re-capitalization of wealth-management holding company WealthTrust, a subsidiary of regional brokerage Morgan Keegan and Regions Financial. WealthTrust, which has pulled in 10 affiliates in about seven years, says the deal means it can resume an ambitious acquisition strategy aimed at establishing itself as a national wealth advisory.

"We went looking for a private-equity partner so that we could expand geographically," says Rusty Benton, CEO of Nashville, Tenn.-based WealthTrust. "Morgan Keegan did not want us going outside its footprint, which is essentially the Southeast. With Circle Peak, we share a common goal of working to create and realize the company's value."

Benton, a 12-year veteran and co-founding principal of Brentwood, Tenn.-based asset manager Weaver C. Barksdale & Associates, founded WealthTrust in 1997 with the idea of buying equity in private-client investment advisories, re-branding them as WealthTrust affiliates and centralizing their compliance, human resources and other support services in the name of cost efficiency.

Within two years WealthTrust had made several acquisitions, and by the end of 1999 Memphis, Tenn.-based Morgan Keegan had agreed to help bankroll its regional growth strategy for a 50% stake in the company.

Through the next three years WealthTrust continued gobbling up advisories, primarily in the South and Midwest. But by 2003 the pace of mergers had slowed. In mid 2004, WealthTrust made its ninth acquisition overall and its last as a subsidiary of Morgan Keegan.

Benton says the slowdown was partly due to a general slowdown in the aftermath of the 2001 economic recession and the market meltdown that started in 2000 and continued through early 2003, and partly to the fact that WealthTrust had maxed out on its home turf.

"We can see there are a lot of firms out there nationally," says Benton. "That's why it was frustrating to be stranded geographically."

Morgan Keegan couldn't be reached for comment, but Elizabeth Nesvold, a managing director with New York-based investment bank Cambridge International Partners who helped broker the multi-party transaction between Morgan Keegan, its Birmingham, Ala.-based parent Regions and WealthTrust and its private-equity partners, says the brokerage "realized it had to make the determination to be in this business whole heartedly or to find the right home for management to expand as aggressively as their model warranted."

R. Adam Smith, New York-based Circle Peak's managing partner says his firm's deal with WealthTrust "best the elements of the partnership model" -- typified in the asset-management realm by Affiliated Managers Group's (AMG) holding-company strategy -- "with a complementary set of services and products for partner firms to enhance and broaden their offering to clients."

Smith's emphasis on the end-client isn't just lip service. Circle Peak is focused on consumer-driven industries like fitness, food, medical devices and -- says Adam -- private-asset management.

Between January 2000 and July 2006 there were 228 merger transactions involving independent investment advisories with an aggregate price-tag of $1.5 billion, according to a new study sponsored by Jersey City, N.J.-based clearing firm Pershing and conducted by Seattle-based business consultancy Moss Adams.

Lucky few

A 2005 study by JPMorgan Asset Management's Undiscovered Managers says that independent advisors have to contend with two main trends over the next 10 to 20 years. One is general attrition as an aging population of firm owners sell or shutter their firms as a prelude to retirement. The other is a growing gulf between "have" and "have not" firms.

Have-not firms may compensate their owners quite well, but they lack the resources to underwrite expansion or to react nimbly to changes in the marketplace, according to Undiscovered Manager's Back to the Future report. So as the advisory space becomes more rationalized through improved technologies and more robust performance reporting, have-not firm owners will have to run harder just to stay put.

" did an incredible job balancing multiple parties' objectives -- including its own -- in one of the most complicated transactions on record," she says. "They've done right by their past partners and will do right by their new capital partners and future acquisitions."

And future transactions won't be long in coming, says Benton. The tenth WealthTrust acquisition he mentions -- that of Scottsdale, Ariz.-based DeGreen Wealth Management -- in fact followed the Circle Peak deal this week.

"You can look at DeGreen as a model for the kind of acquisitions we'll be pursuing," says Benton. "That's both in terms of the kind of firm and the aspect of geographic expansion."

WealthTrust's other affiliates are Memphis-based Delta Asset Management, St. Louis-based WealthTrust · DunckerStreett, Bethesda, Md.-based WealthTrust · FBB, Greenwood, S.C.-based Greenwood Capital Associates, Louisville, Ky.-based Harvey Investment Company, Richmond, Va.-based Kanawha Capital Management, Optimum Investment Advisors with offices in Chicago, Dallas and San Francisco, Norfolk, Va.-based Wilbanks Smith & Thomas Asset Management and WealthTrust Advisors, which has offices in Charlotte, N.C., Nashville and Paducah, Ky.

DeGreen Wealth Management will be re-branded as WealthTrust Arizona. -FWR

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