PE-backed Arax grows with $1.7 billion advisory addition

Advice aggregator Arax Investment Partners continues its recent string of acquisitions by signing a deal with a company with $1.7 billion under management.

Arax backed by private equity announced Tuesday that it is adding SRS Capital Advisors, a registered investment advisor in Denver, to the firm’s division that specializes in pure-play advisory firms. SRS Capital’s most recent Form ADV, filed with the Securities and Exchange Commission on May 15, shows that the company has 23 employees, 17 of whom are in advisory roles. Arax’s press release said the company was founded in 2004 and has branch offices in Pittsburgh and Philadelphia.

Even before adding $1.7 billion to AUM, Arax managed to grow its total assets to over $16 billion in just over a year through a series of acquisitions. The largest, announced on April 11, included Houston-based Capital Wealth Advisors and $8.8 billion in assets under management and advice.

These Arax transactions were sponsored by RedBird Capital Partners, a private equity firm with approximately $10 billion in assets under management. Arax is just one of many large aggregation companies tapping private money to further its ambitions – and it’s a trend that’s raising eyebrows in some parts of the industry.

PE Risks?

Speaking on Monday at Morgan Stanley’s annual conference on finance, payments and commercial real estate in the US in New York, Raymond James president and CFO Paul Shoukry said he believes all private equity-driven mergers and acquisitions benefit established public companies. Raymond James has been listed on the stock exchange since 1983.

“This long-term value proposition is the exact opposite of the value proposition offered by private equity firms,” said Shoukry, who is expected to become CEO next year. “They offer investors the highest possible return in the shortest possible time. And that, by definition, may require another catalyst that will trigger a disruptive event for advisors and their clients in three to five years.”

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At the same time, Shoukry admitted that no one knows what the “end game” is in private equity. But he noted that many private owners now pay twice or more for consulting practices than their public rivals.

This suggests, he says, that they expect SOEs’ willingness to pay will eventually catch up with theirs, or that they will eventually be able to find other private buyers with similarly deep pockets.

“And that hasn’t happened yet,” Shoukry said. “And honestly, no matter what happens, I think it’s going to be devastating for advisors who are involved in this. So, I think it’s creating a flight towards quality and stability in the industry, which I think is optimistic and I know we offer at Raymond James.”

But David DeVoe, founder and CEO of consulting firm i valuation firm DeVoe & Co., said concerns about private equity may be overblown. Even if private ownership of the company is transferred from one group to another as a result of a sale, advisors and their clients will not necessarily be subject to disruptive changes.

DeVoe said mergers and acquisitions will pick up again in 2024 after a slight slowdown in 2023. DeVoe’s research shows that there have already been 115 M&A deals in the industry this year, up from 110 at the same point in 2023.

DeVoe said many of them are still backed by private equity-backed companies like Arax.

“These private equity consolidators have capital, sophisticated management teams, and the core of their business model is to make acquisitions,” he said.

Maintaining an individual brand

Calls and emails to SRS Capital Advisors were not immediately returned. David Simon, managing director and founder of the company, said in a statement: “Our partnership with Arax promises significant improvements in services, operations and technology, enabling us to scale the business, particularly our financing, estate planning and tax capabilities.”

Haig Ariyan, CEO of Arax, said in a statement: “The addition of SRS creates another leading wealth management company with a unique and tailored approach to the Arax platform.”

Ariyan, who joined Arax in 2022 from Alex Raymond James. The Brown subsidiary described Arax’s business as built on three pillars. In addition to American wealth advisors, these included: Ashton Thomas’s private wealth — which was acquired last year and works primarily with high-net-worth clients — and an RIA-focused division, joined by SRS Capital.

“Pure, advisory-only RIAs are a core pillar of Arax’s multi-boutique strategy, and SRS is a key component of this industry as we look to continue to scale and diversify,” Mike Zabik, partner at RedBird Capital Partners, said in a statement .

In previous interviews, Ariyan has emphasized its intention to allow companies to remain their individual brands even after moving under the Arax umbrella. According to Arax’s press release, SRS Capital Advisors will continue to be led by Simon and two other managing directors: Michael Riordan and Patrick South.

Simon joined the industry in 1999 and, prior to founding SRS Capital, worked at two other Denver-based firms, AXA Advisors and USAllianz Securities. According to SEC registration records, South worked at Hirtle at Callaghan in West Conshohocken, Pennsylvania, for seven years before starting at SRS in 2012, and Riordan started working at SRS that same year.