Tax-focused asset management firm Blucora Inc. has agreed to acquire privately held registered investment adviser HK Financial Services.
The acquisition, set to close by the end of the first quarter, is being structured as a stock purchase, with a cash price of $160 million. The cost represents a multiple of about 9.3x fully realized synergies on pro forma 2020 EBITDA of HK Financial Services. As part of the transaction, Blucora expects to issue $165 million of add-on term loan fungible with existing debt.
The merger is expected to boost Blucora's total client assets by about $4.4 billion to more than $72 billion, with roughly 42% in advisory assets. In addition, it is expected to improve the company's revenue growth rate, increase margins and be accretive to EBITDA, EPS and free cash flow.
Blucora envisions HK Financial Services to work as a third division, in addition to its Avantax Wealth Management and TaxACT, Inc.
If the deal is terminated by Blucora in certain circumstances, HK Financial Services will be liable to pay the company a cash termination fee of $800,000. Blucora's obligation to consummate the deal is not subject to any condition related to the availability of financing, but the company's failure to satisfy certain covenants related to financing arrangements for the deal would result in Blucora having to pay HK Financial Services a cash breakup fee of $800,000.
Separately, Blucora announced that CFO Davinder Athwal will step down from his role at the company, effective Jan. 31, but will be available in an advisory capacity through 2020. The company has begun looking for his successor.