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Rating:Pondering a Robo's $1.4B Price Tag Not Rated 0.0 Email Routing List Email & Route  Print Print
Thursday, January 27, 2022

Pondering a Robo's $1.4B Price Tag

Reported by Neil Anderson, Managing Editor

A multinational bank (one with a U.S. wirehouse and a global asset management business) is shelling out $1.4 billion to buy one of the largest independent roboadvisors. That price tag translates into a valuation that's both above what asset managers usually get and below what this robo and others once had.

David Fortunato
Yesterday, Ralph Hamers, group CEO of UBS, and David Fortunato, CEO of Wealthfront, confirmed that Zurich-based UBS has agreed to buy Redwood City, California-based Wealthfront for $1.4 billion in cash. Wealthfront has more than $27 billion in AUM and more than 470,000 clients (translating into an average account size of $57,447). It will become a wholly owned UBS subsidiary, operating under UBS' wirehouse: UBS Global Wealth Management Americas. (GWM had $3.198 trillion in client assets at the end of Q3 2021, including $1.736 trillion in the Americas alone.)

The two sides framing the deal as a way to boost UBS' U.S. digital capabilities and reach with millennials and Gen Z.

The deal is expected to close in the second half of this year. Qatalyst Partners advised Wealthfront on the deal, while UBS used its own investment banking arm. Fenwick & West gave Wealthfront legal counsel, while Sullivan & Cromwell did so for UBS.

That $1.4-billion price tag translates into 5.19 percent of Wealthfront's AUM, well above recent asset manager valuations in recent deals. By comparison, last year Victory paid 2.67 percent of AUM for 100 percent of WestEnd Advisors, AMG valued Parnassus at between one and two percent of AUM when buying a majority stake, and private equity valued what is now Allspring at between 0.39 percent and 0.68 percent of AUM when buying a majority stake.

Wealthfront does have a $1.5-billion-AUM mutual fund, and roboadvisor work is generally a kind of managed account (i.e. asset allocation) service served through an online interface, making it an asset manager of kind (akin to an ETF strategist). Yet Wealthfront also offers banking features and some self-direction (to compete with discount brokerages, perhaps?).

The price tag looks different when comparing Wealthfront to roboadvisors (including its past self). The UBS deal also puts Wealthfront's valuation ahead of the 4.06 percent of AUM valuation that Betterment, another big roboadvisor, got when it raised funding last year. On the flip side, Wealthfront itself was valued at between 5.56 percent and 11.11 percent of AUM when it raised funding back in 2018.

Looking further back, it seems that roboadvisor valuations have come down substantially, at least as a percentage of AUM, perhaps reflecting some of the firms' maturation. A 2014 round valued Wealthfront (fka KaChing) at a massive 47 percent of AUM; other robos in 2014 and 2015 raised funding at valuations of between 13 and 332 percent of AUM! 

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