The Scoop
One of private equity’s favorite playbooks is about to get tested.
Hellman & Friedman and Warburg Pincus are seeking a buyer for Edelman Financial Engines, a network of financial advisors they built by acquiring small teams and solo operators. The $8 billion asking price, related by people close to the process, struck a few bidders as ambitious.
Edelman is a classic roll-up — a trendy PE strategy but one that hasn’t been validated by big exits. The idea is to combine mom-and-pop establishments into sizable companies with centralized purchasing, smarter sales tactics, better technology, and fatter profits. There are optometry roll-ups, pest control roll-ups, carwash roll-ups, laundromat roll-ups, and multiple financial advisory firm roll-ups, of which Edelman is among the oldest and biggest. Prices are rising for businesses that AI can’t (yet) do — so here come the HVAC and pool-cleaning roll-ups.
The question: Then what?
Hellman & Friedman first bought control of Edelman in 2015, did a series of acquisitions, and sold a stake to Warburg in 2021. Both firms and Edelman declined to comment.
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The strategy was pioneered by businessman Wayne Huizenga, who rolled up trash collectors into Waste Management in the 1980s; video-rental stores into Blockbuster and car dealers into AutoNation in the 1990s; and Florida hotels into Boca Resorts in 2004; and got rich enough to own a professional football, baseball, and hockey team.
Money attracts money, and private equity firms barrelled into this trade in earnest in the 2010s. In industry speak, they launched “platforms” to “consolidate the highly fragmented [fill-in-the-blank] industry,” often tapping “seasoned industry veterans” to manage them.
Altas Partners began rolling up local optometrists in 2015, growing from 165 to nearly 600 by the time it sold then-rebranded MyEyeDr. to Goldman Sachs’ private-equity arm in 2019. It was a good trade for Altas, which roughly tripled its investment, but Goldman is six years in without an exit.
Liz’s view
A network of car washes isn’t an obvious candidate for the public markets, especially these days. A wealth-management firm with $290 billion in client money, as Edelman has, will have a hard time competing with giants like Morgan Stanley ($6 trillion) and Merrill Lynch ($4 trillion). Private-equity firms can sell it to each other, but their investors are increasingly wise to, and not fond of, that trade.
And a lot of mom-and-pop operators went solo because they didn’t want to work for a big company. That’s especially true of financial advisers, many of whom broke out from Morgan Stanley or Merrill Lynch — the obvious places to shop a firm like Edelman — and would be reluctant rejoiners and expensive to retain.
Investment firm THL, which owns another large financial-advisory roll-up, Hightower, reportedly sought a buyer last year but couldn’t fetch a high enough price, Wealth Management, an industry publication, reported.
Wall Street occasionally invents merry-go-rounds that work for a while but lack obvious exit strategies. Plenty of industries could benefit from the scale and quality control that private equity can bring — unscamming the locksmith industry would be a public service — but roll-up is a popular hammer right now, and not everything is a nail.
Notable
- The “buy local” crowd is not happy.