Blucora divests its tax software business and renames itself Avantax

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In June 2021, Blucora, the parent company of Avantax Wealth Management, the tax-focused broker/dealer created from the acquisitions of HD Vest and 1st Global, outlined plans to consolidate its tax and management software businesses. of heritage. At the time, CEO and Chairman Christopher Walters said he expected the synergies between these two companies to generate $2 billion in net new assets by 2024.

Now the company is getting rid of its TaxAct business. A subsidiary of Cinven, a global private equity firm, has agreed to buy TaxAct for $720 million in cash in a deal expected to close by the end of the year. It expects to generate net after-tax cash proceeds of approximately $620 million. Haynes and Boone LLP represented Blucora in the transaction.

As a result, Blucora will be rebranded Avantax and become a pure-play wealth management company. It will use the proceeds to pay down debt and return excess capital to shareholders, according to an announcement.

“Going forward, Avantax will have the focus and cost structure to invest in growth and deliver strong Adjusted EBITDA margins, which after the transition services period are expected to be between 16% and 18 %, assuming a more streamlined corporate structure,” Blucora chief financial officer Marc Mehlman said on a call with analysts Tuesday morning. “This transaction will position each of our businesses to operate from a position of strength after both delivered peak performance this year on the most critical KPIs.”

Ancora Holdings, an investment advisory firm and shareholder of Blucora that fought a public proxy battle with the company for board seats last spring, has been asking Blucora to sell TaxAct since last year. At the time, Ancora argued that Blucora’s valuation multiple was below the peer group median and that the company’s overhead was about $6-7 per share in write-down.

“It appears to us that investors remain unconvinced that combining a wealth management firm with a tax software firm will produce viable synergies or support meaningful value creation,” the CEO wrote. ‘Ancora, Frederick DiSanto, in Letter to Board of Directors.

Year-to-date to October 31, Blucora’s share price rose nearly 25%. It increased by around 9% after the announcement of the transaction.

In addition to announcing the sale, Blucora also detailed its third quarter results. Overall, it reported non-GAAP earnings per share of a loss of 20 cents, missing analysts’ expectations of 1 cent, but up 23% from a year ago. Revenue was $171.7 million, down 1.4% year-over-year, beating expectations of $6.56 million.

Over the past nine months, the company has added $1.3 billion in newly recruited assets. During the third quarter, it recruited advisors with more than $200 million and completed four acquisitions in its RIA business.

The company recorded $380 million of positive net flows in the quarter, the highest since the first quarter of 2018, resulting in approximately $810 million of positive net flows year-to-date. Total client assets reached $72.6 billion, including $35.4 billion in advisory assets, representing nearly 49% of total client assets.

Avantax ended the quarter with a total of 3,347 financial advisors, roughly flat with the second quarter and down about 182 from a year ago.

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