Goldman Sachs makes biggest acquisition in nearly 20 years
Goldman Sachs just made its first M&A splash of the David Solomon era, scooping up United Capital in a bid to beef up its wealth-management business.
The Wall Street heavyweight is pushing deeper into the slow-but-steady wealth management industry in hopes of offsetting the turbulence experienced in its once-vaunted trading arm.
Major acquisitions have been rare in the post-crisis world as Wall Street firms focus on avoiding the wrath of regulators and politicians.
Acquiring United Capital — a boutique firm that has $25 billion in assets under management and more than 22,000 clients — instantly gives Goldman Sachs a larger footprint in wealth management and access to state-of-the-art technology.
Solomon — a part-time DJ and Goldman veteran who became the firm's CEO in October — said the deal will "accelerate" the wealth management strategy by "broadening our reach, allowing more clients to access the intellectual capital and investment capabilities of Goldman Sachs."
Goldman Sachs is aiming to diversify away from trading, a troubled part of the bank in recent years.
All major US banks suffered revenue declines during the first quarter in fixed income, commodities and currencies, with Goldman's 11% plunge leading the way lower, according to Keefe, Bruyette & Woods. Trading revenue is expected to shrink again during the second quarter due in part to slower trading activity.
"Wealth management revenue tends to be stickier. That makes it attractive," said Brian Kleinhanzl, a KBW analyst.
As part of the deal, United Capital founder and CEO Joe Duran will join Goldman Sachs. United Capital's employees and more than 220 financial advisors across the United States will also be joining the Wall Street firm.
The United Capital deal appears to be Goldman's biggest since it announced a $6.5 billion purchase of market maker Spear, Leeds & Kellogg in September 2000.
Kleinhanzl said that while United Capital is a "fairly well-regarded" investment adviser, the firm's clientele is not as affluent as the typical Goldman Sachs client. He said regulatory filings show that United Capital's average account size is in the $300,000 range, compared with about $50 million for Goldman's private wealth business.
Beyond adding new clients, Goldman Sachs wanted to acquire United Capital to get its hands on the firm's technology. United Capital's financial advisers use digital platform FinLife CX to grow their business, customize portfolios and stay connected with clients.
Goldman Sachs can leverage that technology to improve the platforms it uses for its private wealth management and Ayco businesses. Ayco caters to corporate executives and employees, providing financial advice and investment management tools to more than 400 major companies.