One of the leading independent robo-advisers is up for sale with a price tag that has some potential suitors doing a double take.
After a summer of sale rumors, Wealthfront Corp. is now reportedly on the block with an estimated valuation of $1.5 billion, capping years of significant development toward CEO Andy Rachleff’s vision of a fully automated platform that directly deposits paychecks, settles monthly bills and invests the rest.
The Palo Alto, California-based company has also maintained high growth, while other robos have been acquired or shuttered. The potential buyer not only picks up the technology and $25 billion in assets under management, but also more than 400,000 clients, a sizable base for any firm looking to expand their investing footprint.
But even with leading technology and scale, the eye-popping valuation has some questioning how realistic a sale may actually be.
For months, the rumor mill pegged the company’s custodian Royal Bank of Canada as the likely dealmaker, but it purportedly balked at the asking price. While a final decision has not been made, the 13-year-old fintech has drawn interest from potential buyers including banks and special purpose acquisition companies, according to a report from Bloomberg last week.
“There is a fair amount of value given the assets and brand recognition, but I’m skeptical that anyone who adds up the numbers gets to $1.5 billion,” said Bill Whitt, a strategic adviser with Aite-Novarica Group. “They’re going to have a hard time selling the business at that price.”
Wealthfront did not respond to a request for comment.
The issue is robo-advice technology has become ubiquitous with all of the major national banks and discount brokers already offering similar products. Hours spent on finance apps is up 90% year over year, while downloads of online apps jumped 20%, according to Bloomberg.
All of this begs the question, who is left with deep enough pockets and a hearty enough appetite for a $1.5 billion robo-adviser?
While I wasn’t planning on dropping names, one company surfaced more than once while talking to industry observers about a potential sale. Goldman Sachs Inc. has expressed interest in building out its wealth management capability, so much so that it paid $750 million in 2019 to acquire United Capital.
While Goldman launched an in-house robo-adviser Marcus Invest this year, an acquisition would give an immediate boost in scale to its mass-affluent clientele and become the perfect retail compliment to the United Capital investment, according to experts.
“With a more realistic valuation, they would have no problem selling the business,” Whitt said, adding that regional banks with the size and reach of an RBC are also realistic possible buyers.
Whatever the price, the sale would mark the final chapter to the independent robo-adviser and, along with its East Coast competitor Betterment, both founded in 2008, more than a decade of spirited rivalry in automated advice.
The startups went on to upend wealth and asset management by bringing down fees and opening up access for retail investors, forcing investment giants like Vanguard Group Inc. and Charles Schwab & Co. to enter the fray.
The industry owes a nod of the cap to Wealthfront who pioneered easy access to the markets and helped hundreds of thousands of Main Street Americans get affordable investment advice and better financial outcomes, no matter who ultimately ends up acquiring it.
Andrew is half-human, half-gamer. He’s also a science fiction author writing for BleeBot.