The acquisition of an ETF startup recently broke down, seven months after the deal was first unveiled.

Veracen Investments Holdings' planned acquisition of Elkhorn Capital Group is not happening, confirms Ben Fulton, president and CEO of Elkhorn. The deal, revealed last summer, fell through last week. Elkhorn is now liquidating its two commodity ETFs, while another ETF startup, Innovator Capital Management, is taking over Elkhorn's other two ETFs.

Michael Kennedy, CEO of Veracen, and Bob Turner, managing principal of Veracen's Turner Investments, referred inquiries to a spokesman for Veracen, who offered the following statement:

Negotiations between Veracen and Elkhorn broke down as the purchase price for Elkhorn became prohibitive. Elkhorn Trustees had until March 31, 2018 to find a solution and chose to assign the funds to Innovator. We wish Ben Fulton and his team continued success. Veracen remains in discussions with numerous parties to launch innovative mutual funds and ETFs using its internally developed investment processes.

The Veracen/Turner and Elkhorn teams first unveiled the deal on August 30, 2017, about a year after Turner merged into Veracen. The plan was for the whole five-person Elkhorn team to join the 25-person Turner team, and then for the combined team to staff up on the distribution side while expanding in the ETF space and launching new mutual funds to replace Turner's own liquidating ones. The deal would close within a few weeks, the two sides said at the time, but instead it dragged out.

"'We'll get it closed in the next month,' they told us," Fulton tells MFWire. "That went on for many, many months."

Things came to a head last week, Fulton says, because Elkhorn's investment advisory agreement with its ETFs was up for renewal at its ETFs' board's meeting last Friday, March 30. At the beginning of last week, Veracen recommitted, Fulton says.

"We were even last week having future product discussions," Fulton says.

By Thursday afternoon, Fulton says, he pulled a Hail Mary play: pressing Kennedy to release them from the deal if it wouldn't get done before the board meeting the next day.

"He released me," Fulton says. "We were caught off guard."

Fulton calls the situation "very disappointing and frustrating." Yet he praises Bruce Bond and his team at Innovator for stepping in and doing "a great job" taking over as the interim investment advisor for the the Elkhorn Lunt Low Vol/High Beta Tactical ETF and the Elkhorn S&P High Quality Preferred ETF, which have about $220 million in combined AUM. Bond and Fulton are both alumni of PowerShares (now part of Invesco).

"I'm thankful that Innovator could be there," Fulton says. "It's been a very smooth transition."

"We're very excited about the opportunity," says Bond, CEO and co-founder of Innovator. "We're happy to have the two additional funds ... It really just helps to continue to broaden out our offering."

Looking ahead, Fulton sees a lot of value in the platform and infrastructure that the Elkhorn team and allies built, and he's looking for other potential partners for him and his team.

"This business could be turnkey ... It's a fresh restart. I'm having a lot of conversations," Fulton says. "I'm also talking to various groups about senior positions at other firms."

"I'm not leaving the industry," Fulton adds. "I love the industry. I'm 100-percent bullish on the industry." 

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