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Envestnet (ENV), $100mm IPO, scheduled for Thurs, July 29, |
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with a market cap of $390mm at price range mid-point of $13 |
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SUMMARY |
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Front, middle, backoffice technology platform for investment advisors |
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Fidelity is a client & accounts for about 33% of revenue. |
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"License fee payments made to ENV by Fidelity under the license agreement cease on December 31, 2011. At such time, Fidelity shall pay ENV ongoing platform services fees based upon usage, which include fees for ongoing technology services and software updates." Therefore, expect Fidelity to negotiate a lower rate. |
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Signed FundQuest in February to a 7 year contract, that requires ENV to pay $29mm to FundQuest (?) |
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Very significant metrics growth comparing June 2010 quarter with March 2010 quarter |
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VALUATION |
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. Gross margin is 32%, which is low for a web-based technology platform |
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. Very significant metrics growth comparing June 2010 quarter with March 2010 quarter |
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. However, the $29mm ENV plans on paying FundQuest raises a question, because ENV’s highest operating profit margin in the past three years is 11%. |
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. In order to earn $29mm to pay FundQuest at an 11% operating margin, ENV needs to generate an additional $264mm in revenue: $264 times 11% = the $29mm ENV is to pay FundQuest, over $50mm per year |
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. See financials at end of report |
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BUSINESS |
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. An independent provider of technology-enabled, Web-based investment solutions and services to financial advisors. By integrating a wide range of investment solutions and services, ENV’s technology platform provides financial advisors with the flexibility to address their clients’ needs. |
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. As of March 31, 2010, $54 billion of investment assets for which ENV receives licensing fees for utilizing its technology platform were serviced by 5,700 financial advisors through 545,000 investor accounts. |
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. Focuses on financial advisors’ front-, middle- and back-office needs
. During 2008, entered into a multi-year license agreement with Fidelity. In connection with the Fidelity license agreement, hired additional back-office, marketing and sales support personnel. |
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EXPECTED METRICS for JUNE 30, 2010 compare to March quarter |
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• Assets under management or administration will be $53.4 billion; up 33% from $40.4bb |
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• Total platform assets will be $106.6 billion; up 13%from $94 |
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• Accounts under management or administration will be 274,959; up 49% from 185,000 |
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• Total platform accounts will be 825,610; up 13%from 730,000 |
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• Total advisors will be 19,376, up 35% from 14.2 |
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RECENT DEVELOPMENTS |
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. In February 2010, signed a seven-year platform services agreement with FundQuest Incorporated, a global investment and managed account services company and subsidiary of BNP Paribas Investment Partners. |
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. Pursuant to this agreement, FundQuest will continue to provide investment products to its clients, but ENV’s technology platform will replace FundQuest’s technology platform.
As of June 30, 2010, ENV’s technology platform supported $13.6 billion of FundQuest assets, which were managed by more than 4,000 advisors through approximately 80,000 accounts.
Paying $29mm to FundQuest plus a warrant |
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In connection with this agreement, ENV agreed to make various payments to FundQuest during the contract term. These payments include an up-front payment upon completion of the conversion of FundQuest’s clients’ assets to ENV’s technology platform, five annual payments and a payment after the fifth year of the agreement calculated based on the revenues we receive from FundQuest during the first five years of the contract term. |
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. ENV’s current estimate of the present value of these payments is approximately $29.0 million.
. In connection with the agreement, ENV also issued FundQuest a warrant to purchase shares of common stock, with an exercise price to be calculated as 120% of the initial public offering price per share of ENV common stock with an initial aggregate estimated fair value of $2.4 million |
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COMPETITION |
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Principal competitors include: |
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• Custodians. A number of leading asset custodians, such as Pershing (a subsidiary of BNY Mellon Corporation) and The Charles Schwab Corporation, have expanded beyond their custodial businesses to also offer advisor trading tools that compete with our financial advisor-directed solutions. |
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• Turnkey Asset Management Platform Providers. Providers of turnkey asset management platforms, including SEI Investments Company, Genworth Financial Inc. and Lockwood Advisors (a subsidiary of BNY Mellon Corporation), typically provide financial advisors with one or more types of products and services but generally offer fewer choices in terms of custodians, asset managers, technology features and functionality. |
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• Providers of Specific Service Applications. A number of competitors provide financial advisors with a product or service designed to address one specific issue or need, such as financial planning or performance reporting. While ENV’s technology platform also provides access to these investment solutions or services, financial advisors may elect to utilize a single application rather than a fully integrated platform. |
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USE OF PROCEEDS |
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$44mm to company from sale of 3.85mm shares. Shareholders also intend to sell 3.85mm shares |
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General corporate purposes, including for selective strategic investments through acquisitions, alliances or other transactions. However, no transactions are planned currently |
