AssetMark Is Hungry for Deals, Big and Small

AssetMark is on the prowl.

The turnkey asset management platform that went public in July, said during its first earnings call Wednesday that assets grew to an all-time high of $56.1 billion in the second quarter and that it’s looking to acquire other companies.

The Concord, Calif.-based TAMP, used by 7,900 advisors and approximately 155,300 investor households, reported net income of $3.2 million in the second quarter on total revenue of $104.5 million. Non-GAAP net income for the same period was $16.6 million, or $0.25 per share. Adjusted Ebitda for the quarter was $28.6 million, or 27.4% of total revenue.

Investors cheered the news.

AssetMark (ticker: AMK) announced quarterly results after Wednesday’s market close, and shares gained 3% Thursday to close at $27.16. Since going public, the stock has traded as low as $22.87 and as high as $28.61.

Profits were modest for the 23-year-old company but executives were decidedly upbeat during the presentation, noting that assets rose despite market volatility in the second quarter.

Assets on the platform at the end of the second quarter totaled $56.1 billion, up 23.8% year-over-year and 12.8% quarter-over-quarter, thanks to net flows of $1.5 billion, market impact net of fees of $1.1 billion and the acquisition of Global Financial Private Capital, which came with $3.8 billion in assets.

AssetMark bills advisors a quarterly fee in advance based on their assets with the company at the end of the prior quarter, setting the stage for improved performance in the third quarter.

Executives also reminded analysts that AssetMark is benefitting from the long-term trend of investors and clients seeking a fiduciary level of care.

The majority of advisors say outsourcing investment management and other business functions has led to a higher acquisition rate of new clients and increased client retention, according to a study commissioned by AssetMark that surveyed advisors. On average, more than three-quarters of advisors outsourcing saw a 27% increase in their assets under management.

“In other words, outsourcing works and we are in the outsourcing business,” AssetMark President and CEO Charles Goldman said during the call.

Kevin McVeigh, a managing director at Credit Suisse, asked executives if the deal with Global Financial Private Capital framed AssetMark’s appetite for other acquisitions. The answer was yes – the firm is actively looking for smaller, “sub-scale” TAMPs to buy.

“We’re able to pay a nice multiple for those sellers because often they aren’t making any money or very little. There may be some large deals out there and those might have some different economics. We are very interested in considering deals of all sizes,” Goldman said.

But it’s not just looking for opportunities to gobble up assets. 

AssetMark said it continues to invest in its platform and ancillary services to advisors, as well as its consulting to help advisors grow. Those improvements could come in the form of an acquisition, especially a technology company. Although, it has yet to do a deal like that.

“We have not found any that make sense to us strategically nor the price points. Often these deals are trading at very high multiples and we’re having trouble making sense of those multiples,” Goldman said.

The CEO said he did not know whether future deals would be financed with cash, equity or a combination of both.

AssetMark raised $124.4 million from its initial public offering on July 22. It used proceeds from the IPO, as well as cash, to pay down $125 million on its seven-year term loan due in 2025.