Joe Duran earlier this year mused that it would be great if someone paid a lot of money for United Capital Financial Partners Inc. and let him continue managing it.
That happened on May 16 when Goldman Sachs Group Inc. (NYSE: GS) said it would pay $750 million cash for the Newport Beach-based firm that Duran started in 2005.
“It worked out all right—only in America,” said Duran, who grew up in war-torn Zimbabwe. “I came here with nothing. I cannot even imagine that I’m sitting here.”
The acquisition is Duran’s latest achievement. He owns a Business Journal estimate of 10% of United Capital and won a Business Journal Excellence in Entrepreneurship award in March.
Through acquisitions and organic growth, his firm has climbed to $25 billion in assets under management, 22,000 clients and 671 employees in 90 offices. United Capital captured the No. 2 ranking on Barron’s 2018 list of Top 40 Independent Financial Advisors.
Goldman Sachs is expanding its wealth management business, where it now has nearly $500 billion AUM.
“United Capital will help accelerate this strategy by broadening our reach, allowing more clients to access the intellectual capital and investment capabilities of Goldman Sachs,” Goldman Sachs Chairman and Chief Executive David M. Solomon said in a statement.
It’s reported to be Goldman Sachs’ largest acquisition in nearly 20 years.
Selling a Maybach
Duran has brought much attention to the industry of registered investment advisers, or RIAs, which has become a direct competitor and critic to the traditional stockbroker wirehouse model. When he began, there were doubts about the model for RIAs, who rely on a percentage of assets for fees rather than traditional brokers who generate sales by trading shares or selling insurance products.
“When you have a firm like Goldman Sachs acknowledging that this is where the puck is going, it’s a very exciting symbol of validation” for the RIA industry, said Jason Lahita, who was Duran’s first employee in 2005 and who is now chief communications officer at Integrated Partners, an RIA with $6 billion in advisory and brokerage assets.
Brokers and RIAs have long clashed over the role of fiduciary standards when giving financial advice. Duran said he doesn’t foresee a problem because of Goldman Sachs’ reputation for customer service.
Goldman Sachs is known for providing white-glove financial advice to billionaires. This deal will allow the New York-based firm a more cost-effective way to help its clients with assets between $1 million and $15 million, Duran said.
“They’ve been [selling] a Maybach and are going into Mercedes land, S-Class, maybe E-Class,” Duran said. “It doesn’t mean it’s a Volkswagen, not that there’s anything wrong with that. I’ve owned Volkswagens before.”
Duran will continue as chief executive of United Capital and become a managing director of Goldman Sachs. He said he couldn’t disclose if he’s a partner; the 400-plus partners at Goldman are known for generating revenue and divvying up the bonus pool.
He doesn’t intend to stop growing, saying he’ll use Goldman’s skills in branding, technology and investments to double assets to $100 billion in “a short time.”
Duran said he found Goldman far different than its reputation.
“They were nothing like I’d imagine them to be,” he said “They were incredibly aligned with our vision on how we treat our client—humble and genuine.”
3x Sales
In a Business Journal story last year when it had $21 billion in assets under management, it was estimated that United Capital’s valuation was between $400 million and $500 million, or two times sales.
Goldman is paying about three times company revenue at around $250 million.
A key reason for valuation was United Capital’s technology platform, Duran said.
United Capital has spent about $15 million annually on technology, including development of FinLife CX, a digital platform that it licenses as a white label to other independent advisers. When the company tweaked the platform earlier this year, partner assets using the product doubled to $22.5 billion.
“It’s a large opportunity—you’re talking in the trillions of dollars,” Mike Capelle, a co-founder of United Capital and its chief platform officer, told the Business Journal earlier this year.
United Capital’s licensing business may overtake its wealth management unit in size, Duran said.
The technology will permit the company to double in size without having to double its employee count, Duran said.
“The client experience that we built is very unique in our industry,” Duran said. “We created the category of financial life management.”
Donations to Come
Duran and his wife, Jennifer, plan to donate a portion of their windfall to charities that help educate underprivileged children and enhance the well-being of women.
“Being here in Orange County is one of the best moves I’ve ever made,” said Duran, who earlier this month was included in the Business Journal’s OC 50, an annual listing of the area’s most influential business execs.
“I’m really happy for the jobs I’ve created.”
The transaction is expected to close in the third quarter of this year, subject to customary regulatory approvals and conditions.
Goldman Sachs’ financial adviser was Goldman Sachs & Co.; Fried, Frank, Harris, Shriver & Jacobson LLP was its legal counsel.
United Capital’s exclusive financial adviser was Moelis & Company LLC while Kilpatrick Townsend & Stockton LLP was legal counsel.
