DEALQUEST PODCAST – Bob Oros
M&A Talk with Leading RIA Aggregators and Integrators:
Bob Oros of Hightower Advisors
Bob Oros is Chairman and CEO of Hightower Advisors, a national wealth management firm that focuses on empowered investing for independent-minded financial advisory businesses to drive growth and assisting clients to achieve what they call “Well-th Rebalanced.” Bob, who has more than 25 years of experience, has spent a great deal of his RIA career at large custodians, such as Schwab and Fidelity, recruiting, retaining, and supporting advisors. In 2019, Bob joined Hightower and since then the company has completed a number of acquisitions of high-profile independent wealth management firms, expanded its own operational and business acceleration services for advisors, and achieved consistently strong organic growth.
While serving as Chairman and CEO of Hightower, Bob is deeply involved with several social improvement organizations. He sits on several boards, including The Chicago Mental Health Association and EEqual, a not-for-profit focused on providing opportunities for students who are battling homelessness. He is very passionate about the cause of financial literacy. He enjoys speaking to student groups, as well as contributes frequently to panels and thought leadership pieces.
In his youth, Bob had no superhero ambitions; however, he definitely had no issue working hard for what he wanted. A self-denominated “hustler” as a child, Bob would wake up at 5:30 AM to work a plenitude of odd jobs around his neighborhood, including but not limited to lawn-mowing and paper routes. Clearly, his entrepreneurial mindset began at an early age.
THE EVOLUTION OF HIGHTOWER
Hightower Advisor was founded in 2008 and the company was a revolutionary idea. Over a decade before Bob joined Hightower, back when they were not in the M&A business, I had the pleasure of coming in and doing a full day’s white-boarding session with the executives at the time to check the landscape of entering the business of M&A.
Following Hightower entrance into the acquisition market, my firm was involved in some of their early deals from the sell side, representing several of their affiliated advisors in the sales of their businesses to Hightower. It has surely been interesting and a real pleasure to see where Bob has taken the company. With Bob’s leadership skills, Hightower has made an impressive 35+ deals.
Bob’s belief in flowing with the tides and evolution has in part made the 15-year-old company so stable. The RIA world is still relatively in its infancy, so it’s going to be ever-changing. Bob’s commitment to keeping Hightower relevant and evolving supports Hightower’s growth prospects for long into the future.
HIGHTOWER’S DEAL TEAMS
Hightower completed its first successful deal in 2016. While Bob has not yet joined Hightower, it is still a very important moment in the Hightower history books, but getting to the point of making 15+ deals a year with three deal teams is no simple feat. This takes clever strategy, experience, and operating deliberately. Bob impresses the serious nature of the industry and urges buyers and sellers alike to not take it lightly. In turn, if you are not fully prepared with not only enough capital, but the right know-how, it’s very easy to do a lot of damage.
For Hightower, taking the industry seriously has allowed the company to:
Divide into multiple distinct deal teams, led by a deal-lead
Have many analysts supporting the distinct deal teams
Have an internal sourcing team, allowing up to 50% of their volume to be created internally
Have a team making outbound reach outs
Bob cannot stress enough the importance of being purposeful in the direction you choose. Dealmaking is not for everyone. It is not something everyone can, or should, do. If you are going to take part in the industry, you are taking on an obligation to become diligent and educated in your deals.
FUNDING HIGHTOWER
One of the most important factors in growth and stability has to be the source of capital a firm has. If your capital source is weak, your business will be weak, ultimately making your deals weak. I have seen too many firms falter due to the unstable streams of capital. In 2018, Hightower was at a place where a fresh injection of capital was crucial; this resulted in Thomas H. Lee Partners becoming the majority investor in Hightower.
Choosing capital partners is crucial. When doing so, you want to be mindful of whom you are choosing. Making the incorrect choice for capital partners or investors can easily turn potential growth into a stalemate. When choosing your investors, Bob suggests choosing someone who is:
Experienced and knowledgeable in the industry
Asks great questions
Gives great input
Willing to help make sure the company’s decisions are sound decisions
Due to Hightower’s calculated and disciplined choice in private equity in January 2018 and the growth that helped facilitate thereafter, by December 2020, Hightower was able to do their first equity recapitalization, which in turn can become a useful tool for building future growth.
Keeping all of the above factors in mind, Hightower knew that they had a very prosperous opportunity and they wanted to be entirely sure they had the right capital structure to support all the upcoming growth opportunities. That structure included:
A secondary where Hightower recapitalized into a continuation fund
Thomas H. Lee Partners continued to be Hightower’s primary partner
Also bringing in 11 passive institutional investors to offer fresh growth capital
This structure mentioned above has been incredibly beneficial and sound to Hightower’s strategy of driving leading organic growth. For Hightower – deals aside – the most valuable companies are the ones that can generate consistent, leading same-source sales growth. Bob truly believes Hightower is that company.
HIGHTOWER: AN INTEGRATED AGGREGATOR?
On the topic of Aggregator versus Integrator, Bob brings up what he calls “The Curve of Conformity,” which asks the question: How conforming does the buyer make the seller?
Within this “Curve of Conformity,” a low-conforming buyer would mean the seller keeps its ADV, branding, etc., etc. This is typical for aggregators. Whereas, on the other side of the curve, with a high-conforming buyer, you are conforming to become them (one ADV, one brand, one tech stack, etc.) – which is more aligned with an integrator model.
Following Bob’s conformity curve, Hightower sits somewhere right in the middle:
There is some conformity
They operate under a single ADV
There are things they do for every one of their businesses – HR, Finance, Compliance, etc.
Single – but FLEXIBLE – technology stack
Brand Agnostic some firms have the Hightower Brand, some have a “Powered by Hightower”, and some have a brand not branded to Hightower at all. Branding is your choice and is not forced. “Whatever creates the most value is what you should do.”
Autonomy of money management
The conformity is in “as Bob describes” the back-office areas. The client chain carries the individualism and is where they try to keep the autonomy.
Hightower does not have a particular view on how you manage money. This means, the capability is available to help their advisors if they want to turn that over, however, this is not a requirement, in turn it really balances out to most that do not need that help, and to the few that do. Neither is right or wrong for Hightower.
Client satisfaction is of the utmost importance to Hightower’s “integrated aggregator” model, and an advisor having the freedom to serve their clients in the way that best fits both parties is the key to how their company functions. By doing things in this manner, Hightower’s goal is to unlock value by giving the access to scale, in turn access to new capabilities that can be value-creating for their client.
To determine where on the curve you belong, Bob suggests to sellers they come to the table with their top two non-negotiable items; without narrowing it down the lists are too long and impossible to work with.
THE HIGHTOWER TARGET
Hightower is done with wirehouse lift-outs meaning no more breakaways. Bob does not think it’s a bad strategy but Hightower is more focused on their acquisition strategy. Their transaction of established businesses does not really mesh well with a wirehouse lift-out, so the majority of their deals are standalone RIAs with some IDB deals.
Hightower also does not take into consideration geography or size. While their history suggests their deals tend to skew on the larger side, they really do not discriminate based on size; there is no artificial number they’re looking for. The same is true for geography.
What they’re looking for are great leaders. This is because Hightower is not attempting to come in and create a full conformity take-over; they’re coming in to build a great leadership team, take some things off their proverbial plate, and power them with new capabilities.
A bull’s-eye target for Hightower is a relationship with great leaders and leadership teams.
For my full discussion with Bob Oros, and more on the topic:
Listen to the Full DealQuest Podcast Episode Here
FOR MORE ON BOB OROS AND HIGHTOWER ADVISORS:
https://www.linkedin.com/in/boboros/
https://hightoweradvisors.com/about-us.html
Corey Kupfer is an expert strategist, negotiator, and dealmaker. He has more than 35 years of professional deal-making and negotiating experience. Corey is a successful entrepreneur, attorney, consultant, author, and professional speaker. He is deeply passionate about deal-driven growth. He is also the creator and host of the DealQuest Podcast.
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