Kestra Sells Minority to Private Equity Firm Oak Hill Capitol

13:30 10 October in In the News by rafferty

October 6, 2022

An independent wealth manager that’s notching notable recruiting gains in an industry dominated by the giants picked up its latest private equity bet on the future growth of the firm.

Kestra Holdings — the Austin, Texas-based parent company of wealth managers Kestra Financial and Grove Point Financial and their 2,400 financial advisors with $122 billion in client assets — added a new minority investor on Sept. 30 when Oak Hill Capital purchased the stake in the firm previously held by funds managed by Stone Point Capital. Firms once near to Kestra in size such as Signator Investors, Voya Financial Advisors and Waddell & Reed have merged into giants like Advisor Group, Cetera Financial Group and LPL Financial in recent years.

In contrast, Kestra has built its own footprint steadily since the Stone Point funds first invested in the firm in 2016 and later sold the majority to Warburg Pincus three years later. That 2019 deal reportedly valued Kestra at $800 million, but the parties to its latest PE transaction didn’t disclose any financial information about the investment. As a onetime insurer-owned firm, Kestra has displayed a knack for changing with the times, in some cases ahead of rivals who only have embraced PE capital and advisor breakaway channels in the last few years and in other instances following competitors that made RIA M&A a huge source of expansion.

Kestra has seen “musical chairs of private equity owners” in recent years, industry recruiter Jon Henschen said in an interview. He pointed out that PE deals often come with higher debt loads financed by junk bonds that could “go south quickly” in certain economic conditions but noted that Kestra has proven adept at carving out its own space in a rapidly consolidating industry. “They have a niche of catering to higher-end advisors, and they seem to be really making headway with the wirehouse advisors,” he added.

Citywire RIA first reported Kestra’s recapitalization deal. Kestra and Stone Point declined requests for interviews, and Oak Hill Capital didn’t respond to inquiries. Warburg is still the majority owner of Kestra.

Kestra’s management and about 120 advisors held shares in the firm after the Warburg deal in 2019, so it’s not clear whether any received payment as part of the latest transaction.

In its last ratings action on Kestra’s debt in November 2021, Moody’s Investors Service affirmed its below investment-grade status of “B3” and said the firm’s outlook remained stable. At that time, an add-on loan and a new issuance of notes totaling $290 million raised the company’s debt to $756 million with a projected year-end leverage ratio of 8.6 times its adjusted earnings before interest, taxes, depreciation and amortization. The agency predicted the ratio would fall to 7.4 times Kestra’s adjusted EBITDA by the end of this year.