Investors Genstar, Aquiline and Atlas sold Ascensus for a deal valued at $3 billion to rollup IPO-prep experts at Stone Point, according to reports.
Genstar and Aquiline just sold Ascensus at a reported $3 billion valuation after a $2 billion asking price failed to draw buyers three years ago. See: After $2-billion asking price for Ascensus gets no bites, Genstar and Aquiline opt to sell 25% stake to juice roll-up kitty
Stone Point Capital LLC and GIC, Singapore's sovereign wealth fund, rewarded the two private equity investors for their faith and patience with a $1 billion or 50% premium for the Dresher, Pa., recordkeeper.
“The market previously failed to recognize what we saw as a substantial continued growth opportunity for Ascensus," says Rich Rosenbaum, a partner at Aquiline Capital Partners in an email to RIABiz.
The firm became a private-equity magnet for rolling up third-party administrators of 401(k) and health savings plans, becoming a standalone recordkeeping force rivaling Fidelity Investments and others. See: Vanguard's 401(k) recordkeeper, Ascensus, gets set to roll up a world of third party administrators to create a small plan superpower
Holding out a couple of years came at a financial cost. Genstar and Aquiline sold 25% of their equity to Atlas Merchant Capital and GIC in 2018 at a far lower valuation.
The sale also means sacrificing the possibility of a real financial home run -- namely, an initial public offering, according to Aaron Schumm, CEO of rival Vestwell, a venture-backed recordkeeper. See: Aaron Schumm is in the catbird seat after the biggest cat in the Wall Street jungle, Goldman Sachs, validates Vestwell by taking a big bite of a new $30 million funding round
"I was surprised that there is a PE play versus a public IPO, because all intentions were, they were going to have an IPO later this summer.
"But there’s an inherent risk in an IPO. I have an indication that Stone Point and GIC came in with cash that was too good to turn down," he said.
"The cash-in-hand versus trying to go public and liquidating ownership can be tricky. They just decided to take the $3 billion."
Many factors played into the decision to act now, Rosenbaum says.
"We believe this is now an appropriate time to sell given the strong market environment, duration of our investment hold and continued growth opportunity for the next investor.”
Genstar and Aquiline both remain minority owners. The two firms have a combined equity stake of about 10%, according to reports.
In this deal, valued at $3 billion, according to Bloomberg and other publications, Stone Point Capital in Greenwich, Conn., comes in as a new investor and GIC is a follow-on.
Stone Point Capital became the principal owner of Focus Financial in 2017 before parlaying it into an IPO cash-out a year later. See: Focus Financial IPO pays off for KKR and Stone Point, after all, by hitting price mark, plus an investor 'pop.' Now, on to the less glamorous task of paying down debt
Getting Stone Point on board is significant, says Dan Seivert, CEO of Echelon Partners.
"They now pick up the expertise of Stone Point which knows the space well and whose capital can be used to drive innovation, increase the brand and build on the client experience.
If they can do these things the enterprise value growth is likely to continue," Seivert says.
Stone Point Capital has had its eye on Ascensus for a while, says Charles A. Davis, CEO of Stone Point Capital, in a statement.
“We have followed Ascensus’ success for some time and see tremendous opportunities for further growth and positive impact on the industry." See: Ascensus homes in on indie 401(k) advisors with adds of Commonwealth, Morgan Stanley vets
Ascensus, which has more than 80,000 defined contribution plans and administers more than 1.4 million IRAs provides white-labeled software for Vanguard Group.
It made news last fall losing Oregon's state retirement account to Vestwell. See: Vestwell is in and Ascensus is out in Oregon as mushrooming 'force-function' state retirement plans spark heated bids to recordkeep; RIAs are angling for a cut, too
Ascensus is a classic roll up that gained scale fast by acquiring small firms, but has room for improvement in making many small purchases work as one streamlined unit.
Ascensus has a few dozen third-party administrators that it has gobbled up in recent years, but none of them are synchronized on the same system yet, says Aidan Yeaw, a 401(k) consultant who has worked at a number of 401(k) firms, including Fidelity Investments and 401Go.
To address the issue, it's making some big company hires.
In April, Ascensus announced hiring industry veteran Teresa Hassara as president of Ascensus unit, FuturePlan, which is the company's third-party administrator (TPA) business.
Hassara worked until Dec. 2020 as president of workplace solutions for Massachusetts Mutual Life Insurance's retirement business.
"It looks like they want Teresa to get all of the systems on one platform. There could be better efficiencies and economies of scale if they were all on one platform," Yeaw says.
Hassara was credited with overseeing a multi-year transformation as head of Workplace Solutions for MassMutual. See: Commonwealth CEO Wayne Bloom brushes off rep pushback, spins off Advisor360 to sell formerly exclusive software and research to Mass Mutual and other competitors
"She has led and grown businesses with great success and driven transformational change to the benefit of client and company alike," said David Musto, president of Ascensus.
As part of the sale, which is expected to close in the third quarter, Atlas is bowing out.
David Schamis, an Atlas founding partner and chief investment officer, has been involved twice as an investor of Ascensus.
Schamis spent 14 years as managing director of New York-based PE firm J.C. Flowers and Co, which was an Acensus owner until 2015.
That year, Genstar and Aquiline acquired Ascensus from J.C. Flowers & Co. in a deal that was worth an estimated $750 million, according to reports.
"It has been an honor to be an investor in Ascensus twice in my career," Schamis says in a statement.
"Ascensus combines a strong market position with a highly skilled and shareholder value-focused management team. I am eager to continue to watch them flourish."