Envestnet, Inc. (NYSE:ENV) Envestnent Acquisition of PIEtech Conference Call March 14, 2019 5:00 PM ET
Chris Curtis - Division CFO & Head of Investor Relations
Jud Bergman - Chairman & Chief Executive Officer
Pete D'Arrigo - Chief Financial Officer
Conference Call Participants
Will Cuddy - JP Morgan
Hugh Miller - Buckingham
Chris Shutler - William Blair
Chris Donat - Sandler O'Neill
Surinder Thind - Jefferies
Patrick O'Shaughnessy - Raymond James
Alexis Huseby - D.A. Davidson and Company
David Grossman - Stifel Financial
Alex Kramm - UBS
Devin Ryan - JMP Securities
Good day everyone and welcome to the Envestnet PIEtech Acquisition Conference Call. Today's call is being recorded.
At this time, I would like to turn the conference over to Mr. Chris Curtis, Division CFO and Head of Investor Relations. Please go ahead, sir.
Thank you and good afternoon. Given today's topic it's even more fitting that I wish you all a happy Pi Day, named for that infamous mathematical constant 3.14 and a whole bunch of other numbers after that.
I'm joined today by Jud Bergman, Chairman & Chief Executive Officer, Pete D'Arrigo, is on a flight back from our India office today and he is unable to be on our call. Today's press release regarding the acquisition of PIEtech associated investor presentation and form 8K can be found at envestnet.com under the investor relations section.
During this conference call, we will be discussing certain forward-looking information. These discussions are not guarantees of future performance and therefore, you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause them to differ materially from what we expect.
Please refer to our most recent SEC filings as well as today's press release regarding the acquisition of PIEtech, which are available on our website for more information on factors that could affect these matters.
During the call, we may also reference certain information, including adjusted EBITDA and adjusted net income per share. This information is not calculated in accordance with GAAP and maybe calculated differently than similar non-GAAP information for other companies. Please see our earnings releases and SEC filings for our definitions of these non-GAAP financial measures.
This call is being webcast live and will be available for replay for one month on our website. Our remarks made during the call are current at the time of the call and will not be updated to reflect subsequent material developments. We will take questions after our prepared remarks.
And with that, I will turn the call over to Jud.
Thank you, Chris. I add my own welcome to everyone. Thank you for joining us today, particularly on rather short notice. Today, we announced the acquisition of PIEtech, creator of MoneyGuide and reporting to a number of industry surveys MoneyGuide is a leading goals-based financial planning application used today by financial advisers.
We believe that the acquisition of PIEtech will create significant value for our clients and our shareholders for several reasons, both financial and strategic. I would like to highlight a handful of these before going deeper into each one.
First, this establishes Envestnet as the clear leader in goals-based financial planning.
Second, it accelerates performance of our vision for enabling financial wellness to a large and growing customer base.
Third, it provides deeper integration of MoneyGuide software with Envestnet, reducing adviser friction costs and enhancing productivity for advisers.
Fourth, it enables overtime a significant opportunity to expand and strengthen relationships with advisers, at banks broker-dealers and registered investment advisery shops.
And fifth, it creates significant value for financial advisers and clients and Envestnet shareholders. We expect that initial accretion in terms of adjusted EPS should be approximately 5% on a quarterly basis once the transaction closes.
The key terms are $500 million purchase price, 41% of that is stock and the balance and cash. This translates to roughly 16 times, adjusted EBITDA for the first year of our ownership going forward and we expect the transaction will close in midyear of this of this current calendar year.
With respect to a company overview of MoneyGuide, MoneyGuideis the leading Software-as-a-Service provider of goals-based financial planning, it has an adaptable financial planning software that goes from light goals-specific plans to very robust and comprehensive plan that helps financial advisers add value for their clients.
They have best-in-class technology with enhanced integrations to a number of other third-party software providers. Their customers include leading banks, wealth management firms, insurance companies and adviser technology providers. Currently, they serve some 87 enterprise and institutional clients and over 13,000 registered investment adviser clients.
Subscription-based revenue accounts for some 96% of recurring revenue, it may have over 50% adjusted EBITDA margins. They were founded in 1997 and are based in Powhatan, Virginia. There are several compelling financial characteristics that MoneyGuide brings.
First of all, it supports our top line growth objectives, and we expect to see mid-to high-teens revenue growth going forward from a greater than $50 million expected revenue base in the time following our acquisition.
Second, it increases Envestnet's subscription-based recurring revenue, as mentioned to some 96% of MoneyGuide's revenue is subscription-based and recurring.
Third, we expect that will enhance margins as today their adjusted EBITDA margin is around 50% of revenue.
Fourth, we expected to be accretive to quarterly adjusted earnings per share while beginning immediately with the close of the transaction that amount around 5%.
And fifth, we believe it to be highly aligned with our capital structure. There will be an increase in leverage to around 3.7 times to pro forma trailing adjusted EBITDA with deleveraging overtime.
Maintain our capacity to retire our December 2019 convertible notes, and we expect to be under three times on a net revenue leverage basis by the end of the year. As mentioned, the purchase price is approximately 16 times going forward, adjusted EBITDA for MoneyGuide.
I'm going to hand it over to Chris Curtis, to go over some of the other terms of the transaction, and then as he hands that back to me, more about the strategic benefits of this acquisition.
Thanks, Jud. As noted in the press release, we're acquiring PIEtech for $500 million, consisting of $295 million in cash and $205 million in Envestnet stock. We intend to satisfy the cash portion of the consideration with the combination of cash on the balance sheet and borrowings under our revolving credit agreement. The equity portion will be satisfied by issuing approximately 3.2 million shares of Envestnet stock to the sellers valued at $205 million, using yesterday's closing price of $64.37 a share.
In addition to the purchase price, we intend to issue up to $30 million in retention awards to certain members of PIEtech leadership team and other employees. These awards will be a combination of cash and restricted stock and will be finalized upon closing of the acquisition. We expect to close in the middle of the year and transaction is subject to antitrust clearance and the satisfaction of other closing conditions.
Following closing, we expect our pro forma leverage to be approximately 3.7 times trailing adjusted EBITDA including acquired EBITDA. That’s within our total leverage covenant of 4.5 times in our credit agreement allowed for primitive acquisitions, and this assumes borrowing $130 million from our revolver and using 165 million in cash from our balance sheet. Net leverage at closing is expected to be approximately 3.5 times.
Cost of debt under our credit agreement is LIBOR plus a range of 1.5% to 3.25% depending on leverage and would be 2.75% at the expected leverage levels. One month LIBOR today is around 2.5% so we are looking at a total interest rate of around 5.25% for the borrowed amounts. We expect to reduce our leverage post acquisition similarly to how we have done it in the past by continuing to grow our adjusted EBITDA and paying down the amount borrowed.
Aside from normal levels of capital expenditures and investments in growing the business debt pay down will be our primary use of cash flow in the foreseeable future. We expect to be well-positioned to settle the December 2019 convertible note maturity with available cash on hand and borrowings under our revolver.
As Jud mentioned, we expect PIEtech will contribute meaningfully to our subscription-based recurring revenue. We also expect a financial contribution from PIEtech will immediately enhance our adjusted EBITDA margin and be accretive to our adjusted earnings per share. We will update our specific guidance for 2019 once we have clarity on when the transaction will close.
With that, I'll turn it back over to Jud.
Thank you, Chris. I would also refer to our website where we have an investor presentation that documents many of the points that we are making. Following that now I'm on Page 6 where I would like to talk for a moment about how important financial planning is as a key component to our strategy for enabling financial wellness.
As I have described before, we see five elements to financial wellness that begins with the financial planning and then extends to budgeting and spending applications that are in the hands of the client. Investing becomes the central part of fulfilling many of the goals and the objectives set forth in the financial plan.
And then financial wellness also includes protecting capital, legacy and identity as well as managing credit. Comprehensive financial plans and form and influence all aspects of financial wellness. And Envestnet's integrated offerings for clients drive significant revenue opportunities and enable us to deliver better financial outcomes for our clients.
The acquisition will also help transform our business from being a managed account platform to becoming a financial wellness network. As we started as a managed account platform, we were very investment-advice specific. And in 2014, we very intentionally broadened our outlook to become a wealth management platform that was data driven as well as planning centric to round out that wealth management offering.
Today, we move towards becoming much more involved in delivering on financial wellness capabilities in an adviser-centric ecosystem. We are broadening our advice paradigm to include those elements of financial wellness, tax and estate planning, impact investing and more. And advice is becoming a comprehensive planning and seamless integration of investment solutions and other wealth management applications.
Our client portal is more and more strengthening the relationship between the adviser and their clients. This human relationship is augmented and strengthened by a digital connection that is technology enables, and we expect that we will be able to offer this to more and more advisers for not only their high net worth clients but mass affluent and even mass-market client base.
We have talked in the past about our growth strategy would be supplemented from time to time by disciplined strategic acquisitions. We've talked in the past about consolidating acquisitions and strategic acquisitions consolidated. Consolidated acquisitions would be an example of which would be FundQuest or Prudential WMS or most recently FolioDynamix.
We benefit from increased data and from increased scale. We have higher cost consolidation cash flow. Overtime, we have expanded margins, but we also during the period of time of integrating the consolidating acquisition from time-to-time experience slower levels of organic top line growth.
Now in contrast, we have made a handful less than a handful of strategic acquisitions, Tamarac in 2012, Yodlee in 2016 and now MoneyGuide in 2019. Strategic acquisitions are an important part of our growth strategy when the business or the technology can benefit from incorporation and deep integration into our platform -- into our ecosystem.
We also pursue strategic acquisitions when they enable an expansion or an improvement in our product offering or the addressable markets that we serve or our financial profile, and we also see overtime significant cross-sell opportunities to the MoneyGuide base, both MoneyGuide clients that don't today use Envestnet and conversely, Envestnet clients that don't today use MoneyGuide.
So in summary before we take your questions, I will identify again the key benefits we see from this acquisition. Number one, it establishes Envestnet as the leader in goals-based financial planning. Second, it accelerates the fulfillment of our vision for financial wellness. Third, it enables us to have a significant opportunity to both expand and strengthen relationships we have with firms and advisers. And fourth, we believe it can creates significant opportunity to create value for financial advisers and clients very importantly Envestnet shareholders. The addition of MoneyGuide broadens and enhances our integrated wealth management platform, supports our vision, create significant value.
So with that, at the end of our prepared remarks, Chris and I are happy to take your questions.
[Operator Instructions] And at this time, we will take our first question from Will Cuddy with JP Morgan. Please go ahead.
So to start off, can you talk about how MoneyGuide charges on subscription basis? Is it number of accounts, usage or enterprise-level licenses? And relatively, where is the mid-teens growth coming from? Is it new clients on-boarding, clients adding more accounts or MoneyGuide selling additional products?
So, MoneyGuide like most enterprise software has a variety of pricing mechanisms. Advisers can access MoneyGuide as part of an enterprise license, and in those cases, its usage base, its number of users, and there is also a volume of use dimension to that. Independent advisers can use and license the MoneyGuide software just directly from MoneyGuide. The growth in revenue that MoneyGuide has experienced over the last 4 or 5 years has come from a combination of more enterprises and more advisers within the enterprises that already adopt that, that's a primary lever of growth for MoneyGuide over the past 4 and 5 years.
And we expect that will continue to be the primary driver or engine of growth, although, there is a new product offering that's are currently being rolled out blocks, which is very sophisticated goals-specific planning capabilities that the adviser or the enterprise can put in the hands of the end client, so that that client can do scenario analysis and what if and can determine how close or far are they to reaching very specific goals. For example, retirement or education funding for a child or a grandchild, those are examples of the kinds of single point goals that can be analyzed and understood using the new product that's being introduced even now this first part of 2019.
And then Jud, you mentioned about distribution in the -- and some of the client overlap and cross-sell, could you maybe frame that a little more and what -- do you know the overlap of MoneyGuide users with Envestnet and Tamarac currently?
There is a -- it varies by channel. Today, MoneyGuide is the number one utilized financial planning software among the Tamarac adviser base. So within that, segment of the Envestnet's market, which is the large RAA, RAA was $500 million or more MoneyGuide is the number one software, but in doing about 30% share of the Tamarac users.
It is today lower than that in terms of shared overlap within what we call the enterprise market. With the enterprise market while there is a fair amount of overlap, there is also a significant amount of greenfield for us to work more closely with clients that MoneyGuide is at, and we are not there yet. And conversely, there is more opportunity within enterprises that Envestnet is involved in to work with MoneyGuide.
And we will take our next question from Hugh Miller of Buckingham. Please go ahead.
I guess -- can you just talk about as we think about -- this seems like a strategic deal, but are there areas of consolidation that are inherent as well? How do we think about the duration of the Company's ability to achieve the hurdle rate? I know on a consolidating transaction you are looking at mid-teens or better within 2 to 3 years. How long should we think about this type of transaction for you to be able to achieve the similar type of return?
I'll answer the way we are thinking about it, how we think about it. Consolidating transactions have a very simple return on invested capital of post consolidation, take a post consolidation, post conversion EBITDA divided by purchase price and that gives the return on invested capital. For strategic acquisitions, we look at it on an IRR basis and we expect that we will achieve a mid-teens IRR on this acquisition within the four to five year period.
And to get to that, we expect that this business will continue to grow profitably probably a little bit faster under our stewardship, than on its own. We don't see significant cost synergies in the early years but we do see a benefit from scale overtime so that we expect margins will continue to improve. This is the closest -- this is as close than offering to within the Envestnet ecosystem to a pure Software-as-a-Service a pure SaaS model where a number of our offerings are subscription-based in the recurring revenue.
Envestnet excluding MoneyGuide is about 96% recurring revenue, maybe 6% recurring revenue for Envestnet. And the majority of that is asset-based recurring revenue from a gross revenue. From a net revenue standpoint, it's the majority of which is subscription-based recurring revenue. But even the subscription-based recurring revenue that Envestnet does, there is oftentimes a service included.
For example, reconciliation services within data services or billing administration services within our performance reporting. So there is very little to no service element other than software support for the Company. We expect that the margins enhancement will be due to the software nature of the offering being supported software. But we don't see a tremendous amount of expense synergies in the early years, other than the kinds of things like we will see some overtime and hosting costs, the money we paid to conferences and third-party marketing organizations, we expect that there is going to be some benefit there.
And you've mentioned the 16 times EBITDA multiple for relative to the first year of EBITDA on the Company. Can you just give us a sense of how you are comparing this to other transactions that have taken place? And I guess why you've felt that was the appropriate multiple to pay for the asset?
I am very happy to address that you -- this is a company that we have been interested in acquiring for really almost as long as we've been public. This is a company that we identified five years ago would be the financial planning capability of choice. There was trade within the last three or four years of significant financial planning capability, don't know the full details but we would estimate that went for between 6 and 7 time revenue, but we would also estimate that it went for more than 40 times EBITDA, so that’s a data point.
Another data point is well, this was something that we've been trying to get to for a long time, we work to hide better in this process, there was a another interested party that that higher bid and then the question is, why would MoneyGuide go with somebody that wasn't in the highest bid and the answer to that is the sense that we were much better fit for their customer base, their employee base and the legacy that Bob Curtis and Tony Leal want to leave with the very fine company they have built in MoneyGuide.
So from a EBITDA multiple standpoint, it’s certainly a full price. From a revenue multiple, it's certainly a full price. But given the perceived value that we had and that other had we’re very pleased with the financial profile of how this looks going forward. And I would also point out that the founder of the Company is a believer in what we're trying to build that investment. If he weren't, he wouldn't have taken 40% of the consideration in Envestnet stock.
That’s great color very, very helpful. And then last for me just you know in terms of how do we think about the lock up for this year is going forward?
There will be provisions on the shares going forward. Some of them are just what we have from a regulatory standpoint. There will be additional -- there will be additional safeguards if you will that are or will be in place by the time the transaction closes. I would also add that the Company, it's been a private company and so they have not had the same scrutiny about revenue recognition. All those kinds of things there is tax audits that have been completed for a number of years, but the guidance that were given in terms of adjusted EPS accretion approximately 5%. We expect that we will update our forecast and our guidance for the year as when we close the transaction, which we expect to be midyear in price probably end of May or end of June.
[Operator Instructions] At this time, we will take our next question from Chris Shutler at William Blair. Please go ahead.
I think Jud that you've done some fairly significant integration work that MoneyGuide grow in the past. So maybe just to talk about what else that lets you do I know as the increased integration opportunity mostly around Yodlee?
So, we've done integration in the past with a number of firms. And what we have today is a single sign-on which enables the adviser to move kind of seamlessly without reentering credentials between the MoneyGuide app and Envestnet, Envestnet either the enterprise version of Envestnet or the Tamarac, the Tamarac RIA version. So for the integration to really work well and to give the adviser productivity enhancement which is really the secret sauce of Envestnet, as I've mentioned before, advisers that use integrated wealth and technology and by that it's where the data flows from that one application to another, from your CRM, to your financial planning, to your on-boarding, to your research, to your portfolio management, to your billing.
And to your performance reporting, there is a significant productivity moves and we've had three versions of third party study, the ITI Group, the most recent version was integrated technology turbochargers adviser productivity, and those advisers that use it to grow their practices at more than twice the rate of advisers that build. But the core part of our value proposition. Now while we've begun to make that work there is more like to become there is more benefit that will still happen, as we make the Yodlee data aggregation flow, it creates a dynamically updated financial plan. And then, we will make the financial planning output map very, very specifically to asset classes and vehicle selection that will -- that will be tax optimized, don't have that same level of complete product integration.
So overtime, we expect that by owning the asset, we will be able to provide deeper integration that benefits advisers that makes them grow faster, that makes Envestnet's platform adoption faster, that's a virtuous circle of benefit for user and for provider of it. We also expect that the by owning the asset, we will be able to deploy it more in more places. We will be able to deploy it within our fiduciary exchange almost immediately. As we bring our other exchanges around our advisers centric ecosystem. The next one, we expect will be a credit, exchange or an adviser credit exchange.
Again planning, a planning engine that we can manipulate, so that it's not the full comprehensive planning engine, but it may just have to do with managing debt or it may have to do just with managing actuarial outcomes with respect to income or outliving income. So, we can embed pieces of the MoneyGuide code base and deploy it much more effectively if we are owning it than having to go through and do what another license arrangement every time we want a new use case. So, we expect that overtime that integration will have an adviser benefit. But just as importantly, maybe more importantly, we will be able to deploy the core engine in a lot more native applications for us as we grow.
And then, I guess what the thoughts for the industry overall. Can you just help us understand what percentage of advisers are actually using financial planning software today? I think it's still not as well adapted as it probably should be. And what is the opportunity in your view for that to increase? I would think most advisers like I said should be using it, but there some obviously are not today. So what's going to drive that increase?
So, that's a really good question. So let's just take with the -- most people are familiar with the designation certified financial planner or CFP. And there is over 60,000 CFPs today, but a number of them are retired, some of them are teach. We estimate that the number of CFPs were also wealth advisers is probably in the 45,000 to 48,000 range. So that’s kind of the core base of planning professionals, if you will that are within the broader superset of North American advisers which today number around 314,000. So let's call that 300,000 and let's call the other 50,000.
If you were to double that 50,000, I think that that's a generous estimate of -- so now that’s a 100,000. I think that’s probably a generous estimate of how -- what number of advisers are even really familiar with comprehensive planning today. And that might be an upper limit of it, because the actual number of users is more like 20% to 22% within the independent broker dealer space a little higher within the national wealth management firm space which will be wire house and as high as 40% within the RIA space. And I have even seen indication that that number is as high as 60% within the RIA space.
So it's very channel specific. But we with the acquisition of Logix that we made coming up on four years ago we wanted to buy Logix for if you will a black box based of planning capability for the non CFP. So we have had a good success with the gaining adoption of the Logix tool within the context of Envestnet platform user. And many of the advisers making use of the of the Logix engine don't even know that they're using planning software so to speak because it's doing outcome analysis and scenario analysis around not only identified goals, but also around cash flow requirements in the future for things like retirement.
So, we think we've got a very good solution for the non-planner. What we like about MoneyGuide is that it's the premier goals based solution for this 100,000 call it marketplace of professional planners plus advisers who are committed to planning. We think that overtime net number could grow to 40% or even 50% of the overall marketplace and looking more like it does in the RIA space across all of wealth management. And then, we think that there is probably a subset of that are, if you will super users who are interested in a need sophisticated tax state and cash flow-based forecasting for ultra-high net worth households.
Household with 22 million in up and investable assets, who have estate planning challenge, and it's for that marketplace of power users that we are going to continue to work on the already announced joint venture of us with MoneyGuide and Apprise Labs to create our high-end offering that's cash flow based. And we will have an offering for a planning offering for the non-planner. A goals based offering for the market that we think is large but will grow overtime. And then a very specialized collaborative tool for the high-end of the marketplace and that’s how we’re approaching it.
Now, one thing I would say is that we see -- overtime, we see that the goal-based planning has some fairly straightforward and easy modifications for to go beyond there, MoneyGuide current footprint, which is very U.S. specific. So overtime, we expect that will be able to expand that from U.S. to North America and also we expect will be able to draft in behind Yodlee's significant international client base, which is data and analytics driven to incorporate the goal-based capability.
At this time, we will take our next question from Chris Donat at Sandler O'Neill. Please go ahead.
I just had really one based on the subscription revenue model for MoneyGuide. I want to make sure I understand it and I'll start with a personal example here. So, I heeded your advice and I went and I got a financial plan and as an end-user I think well, great, I did that last year. Do I really need to do that again? And that’s talking out from the end of the perspective of the end-user, but for the recurring nature for the RIA or the enterprise. Can you -- how may I understand why that would be recurring? Or why they see this as a subscription? Is it more than their updating the plan every year or using it as a way to monitor progress on a plan? I just want to make sure I get the use cases here.
So, very good question. Let me see if I can help do a better job of explaining and how things work. So if you are planner, if you are a certified financial planner. You are in the business of starting every client engagement with the comprehensive plan, and that plan 5 years ago was paper based in terms of where the data for that plan came. So, the planner would give you a checklist, and you'd assemble in boxes, your credit card statements, your mortgage, your data, your investment accounts, any other stuff, you'd the assemble that you would sit down, you would answer a questioner, and then all of that would be incorporated into a kind of a point in time plan that then would kind of the in place until substantial changes to your portfolio or your income or your health came about, that's kind of how it use to be done.
Now with the advent of reliable data continually update it around not only spending but income and investing that plan becomes dynamically updated, and it becomes more of a living plan, a living balance sheet, if you will, a living cash flow statement, a living liability estimation and this gives a better sense of how things go overtime, particularly when it's rendered over a client portal where it shows progress to goals. Now for that ongoing license, the adviser is not paying MoneyGuide to a plan. They have a -- if you will and all you can use access to that and I think in the last year alone, there has been some $2 trillion of financial plans that have been created by users of MoneyGuide.
So, this is not only for existing clients, all of which needs updates overtime, it's for new clients as well. And that's why the recurring revenue model works very well for planners because of there, there planning is essential part of their practice. And when they meet with the clients on a semiannual or an annual basis, one of the things that they'll review is what are the changes, what are the changes that. If it's -- if the data is automated the adviser is of course is pretty to those changes. If that daily is not automated, it's more of the all analog way of updating that that report that plan, but that's done then through data entry back to the advisers firm.
Okay, so it's really Yodlee is brining you the dynamic data that is a quantum change here from what exited just 5 years ago?
That's right, and that's why we started with the data.
We will take our next question from Surinder Thind at Jefferies. Please go ahead.
I just wanted to touch base on the competitive environment in the sense that, does acquiring -- does making this acquisition for MoneyGuide basically changed the committed environment in the sense that one of your biggest client also has arguably the most competitive software up there as well or major competitor software?
I think that the competitive landscape is not changed by this transaction. We are in a landscape of competition and that's an element that is going to be here for -- it's been here since I started the business 19 years ago, and we expect that it's going to continue to be a part of the business. So, I don't think it changes anything from the competitive landscape. I think it makes our offering more competitive but it's not a sea change more competitive, it's more competitive around the margin initially. Overtime, I think it will be a very important differentiator for us. And that's why we considered it to be as important for us to do it as we have.
And then maybe following up on the earlier question about the importance of the integration, how should we think about the timeline and the benefits that you guys might achieve? When I go back to the last big strategic acquisition, I would argue that the integration took perhaps longer than anticipated. And yet it was described that because there wasn't going to be a lot of integration of the code base things would happen perhaps quicker than they did. But it didn't quite turn out that way. And so, how should we be thinking about this integration and maybe how that changes the offering overtime?
So, this is an integration there is no conversion of software. And like Yodlee, there is no conversion of software. I don't believe I would agree with your assessment that the Yodlee integration took longer than where what we thought. I have not said that, I don’t believe that. Like Yodlee, there is no conversion from existing software or existing code base to new code base. And so, that makes the conversion or the integration process much less cumbersome or complex than it does for a consolidating acquisition like WMS, which took longer than we thought, but we still achieved or exceeded what our hurdle rates were, or FolioDynamix, which is underway and is on target on plan.
So, we expect that overtime the real benefits come as we are able to deploy elements of the MoneyGuide software, MoneyGuide code base into new instances, and that of course will take time. But we expect that, that will have a corresponding enhancement to the financial profile of the acquisition as that happens. So, we've given you a base level of expectation as to what we are looking to do without any significant revenue enhancement at all that will come overtime, and that will be an improvement to where we are guiding the initial benefit is going to be here.
And we will take our next question from Patrick O'Shaughnessy at Raymond James. Please go ahead.
I want to follow up on eMoney. Would you expect this to impact Envestnet integration with the money at all? Or how your advisers are currently use eMoney would interact with Envestnet?
We expect to fully integrate with a number of applications, and we want the user experience for the user of eMoney to be as robust and as seamlessly integrated as the user of MoneyGuide is going to be. So, we are committed to open architecture. We believe in it and we expect that that's going to be a part of the value proposition. We have tremendous base of shared finance that Fidelity, eMoney, Envestnet all share. There are shared clients eMoney and MoneyGuide because eMoney is a great client portal cash flow based in its approach. MoneyGuide Pro is the goals based financial planning software and so you have firms and even advisers that use both software.
So, integration is an important element for it’s a core principle of what we have. And for the user of MoneyGuide, the user of eMoney, we would like to have a seamless experience. Now for our deployment of MoneyGuide into these new applications, these new exchanges, we don’t have that flexibility to do that with eMoney and that’s one of the reasons we like this is because we see tremendous application of using this within our retirement plans, within our insurance exchange, within our credit exchange. And elements of these goals based planning capability around specific goals we see tremendous product deployment opportunity that we only would only get if we owned the covered base here. But that’s a different point than the integration.
And then obviously this is a pretty big deal, you’re going to take your leverage up to 3.7 times. Is it a safe assumption that this will kind of take you guys out of further M&A for the foreseeable future?
I would say that it's safe assumption that it would take us out of anything significant and strategic for a while first of all, that’s the first one. Second of all, until we are comfortably below three, I believe it's going to -- I don’t like a permanent leverage of over three as part of our capital structure. I’m very comfortable with 2.5, comfortable even at higher levels than that but situation dependent, so that's another factor. But there is a very interesting pipeline of consolidating acquisitions, and I would not put close the door to a consolidating acquisition that is accretive and that would not adversely affect our leverage ratio.
We now take our question from Peter Heckmann with D.A. Davidson and Company. Please go ahead.
This is actually Alexis on for Pete. So thanks for all of the detail on acquisition which is certainly very helpful. So, I'm hoping you can give us a little bit more inside. You did just mention, if there are other better some of the process and that you were pursuing PIEtech for quite some time. So, hoping for the little bit more insight, why did the Company decide that they were ready to be acquired? And then was this something that they sort out? Or what is just more co-bidders seeking them out at the same time?
I will trying to answer the best I can. I think that over the last 6 months or so, I think that the -- and then sure you can ask the question of Bob Curtis, himself, but my understanding is that. He concluded that the value of a single point application, it could be the best financial planning apps for goals based planning out there. But as a single point application, I believe he began to experience some of the limits of a single point application in the platform world. And if we're in the platform world and we're moving to a network world, which is how I see what's happening in the wealth tax space, that the ability to do everything he wanted with what he had created and the legacy that's represented by that, was more compelling for him within the ecosystem, within a platform, within the network than it was as a single point application provider.
So, I think that was a big motivation, and I'm not surprised that he would come to that conclusion because the benefits of deep integration within the network, within the leading platform are significant to users and to providers of software. And then, when he indicated a willingness to consider, we were very, very aggressive to be on that process and put our best foot forward. But there -- but we weren't the high bidder and, so I indicated that I believe that there is -- for a private company, it's more than just whose is going to give the top dollar, it's also who is the best fit from my customer base, and who is the best fit for my employee base, and whose strategy do I really believe in. And I think all of those were factors.
That's really helpful framework for I think audit. So then just moving back to the competitive landscape a little bit, you mentioned that you are now -- the combination will create the top player in the field and I am hoping, if you happen to have any breakdown of market share on hand that would be helpful? The data point of the 30% of Tamarac users was certainly very helpful.
There are a number of sources for this data. We have our own data analysis that we use for our strategic planning, our own market planning, our own market research; Karen Lanzetta is the director of all of that. And that we do not -- that’s for our purposes, we do share elements of that with our best distribution partners. But I would encourage you to look at those -- there was a recent survey conducted by Joel Bruckenstein as part of T3, which is one of the leading wealth technology events.
There is two of them a year, but there is an annual survey and that has as good an assessment of market shares as anything only else. The only issue I have got with that is that, Envestnet is actually I believe significantly underrepresented in some of the survey data because an adviser, a rep who uses in Envestnet will sometime save the use Envestnet for everything. And when they do that, there is an adjustment made to the survey. So, if anything I believe, the T3 data is as good as out there, but if anything I believe that underestimates what Envestnet share is effectively.
We will take our next question from David Grossman at Stifel Financial. Please go ahead.
So I just have three very quick questions. I think you have done a great job of laying a lot of this out. First is the very basic one. Is the first 12 month EBITDA and maybe I'm getting this wrong, but I'm just trying to back into your 16 times. Is it a $50 million kind of business in 2019 at 50% margins, so 25 million in EBITDA? Or am I getting that wrong?
So, it's over 50 million in 2019, but we dimensionalized it as greater than 50 million. We haven’t said just how much, but it's greater than 50 million. And it's 50-ish percentage margin, yes. So, the 2019 EBITDA is the amount which that 16 multiple comes from.
On an annualized basis, right? So you are talking about…
I think, David, we quantified that the way we did because PIEtech is still finishing up their 2018 financial audit and also beginning to apply the revenue recognition rules that we implemented a year ago as a public company. They need to implement them in 2019 as a private company which we now will inherent as a public company. So that work is still underway and once we have that settled when we update our guidance we will include all that.
And then, Jud, you gave a lot of data points over the last 50 minutes, but I think in a couple of the questions it was -- do you need to own it versus license the asset? And you gave bits and pieces here and there, but can you just give me the top two reasons, if you will, why it's better to own this asst from your perspective strategically for Envestnet rather than continue to license this product or another one other than getting into someone else?
So, first of all, we see financial planning as a key and maybe even the key element of our financial wellness strategy. So, we’re going to own exchanges, we own the wealth management platform. We own a data source or data aggregation and analytic piece. Financial planning is, if it's not the key, it's a key to our financial wellness strategy, and we deem it to be strategically important for us that we need to own it rather than license it or rent it or partner with it. And then when I talk about the ability to take hold base and deploy it into new situation or segment of it, you can’t do that with the license or subscription arrangement.
We’re looking for the next version of our retirement platform, we’re looking for a retirement module within the overall MoneyGuide goals based about its just retirement and it's just been saw for retirement and that’s going to have an income component, but it is very use specific and we want to be able to create versions of today's MoneyGuide not just for the CFP that’s using Envestnet, but also for the non CFP who is using our retirement platform and doing advice to the 401k participant at a plant that they are adviser for.
We also want to be able to use it for adviser that is doing an income protection plan for their client that needs to go out and buy some of the new lease, but it's all about not outliving their assets and there is a simulation engine that is part of MoneyGuide today that we want to be able to deploy for just that. You can’t do that with a subscription or a license-based. So those are the two thing, it's critical for us its strategic for us and we want our financial planning goals base financial planning goal base that we can deploy in our exchanges that were developing and in used cases that we don’t have today.
Thank you for that. And then just a last one is just getting back to the notion. So, this is a business that is going mid-to high-teens and it sounds like your accretion guidance is based on maintaining that mid-to high-teens growth rate. Did I get that right?
So, our accretion guidance is just kind of for the first year. And if they are growing at mid-to high-teens and our target for the Company is mid teens then presumably there is going to be a growing accretion just by looking at the math. So what we've given is a first year early quarter accretion guidance of 5% and with a business that’s growing as fast as this is I would expect as we get closer to the completion of the audit and give guidance for year when we close this I would expect that accretion percentage would grow overtime.
So, I guess what I was getting at is that mid-to high-teens is really and we are in the businesses today without the benefit of being part of the Envestnet platform, right. And I think that's if I'm understanding you correctly that -- is the correct?
That's correct, yes.
Okay, so as you think about your ability to impact that growth rate. What's just based on your experience with the Yodlee and other strategic acquisitions? And maybe even what's unique to this particular platform? How long do you think you can impact the growth rate of MoneyGuide? Is that a year or is that two years or more than that?
So, it's a -- here is how we look at that and I'll just give a couple of examples. I'll go back to Tamarac and I'll go to Yodlee. When we bought Tamarac in 2012, but in the 7 years since we've bought Tamarac, we've been stewards over probably an 8 to 9 fold increase in revenue in that period of time. Bringing out new products and supporting the product team and the organization, and then an infinite increase mathematically in EBITDA because they went from not making money to being a very nice margin contributor.
But that entire time the growth rates, the growth rate decelerated after that first year. The absolute dollars added each year increased, it's still increasing. But the percentage declined and with Yodlee, we saw a doubling of revenue in three years time and about a six-fold increase in EBITDA in that same time. And like Tamarac in Yodlele, we believe that the platform affects of coming into Envestnet that we believe that above average, what's average, let's say two or three times GDP is average for Fintech.
Above average of growth we can maintain for longer at a Tamarac or Yodlele or a MoneyGuide because of the overtime the cross-sell opportunities. So, we expect that it's going to be, we're going to be able to maintain growth rates, at MoneyGuide that are above the underlying Envestnet organic growth rate for some time. The main reason it's a smaller, it's a smaller revenue base. But we've been able to do that in the other two major strategic acquisitions we have made since we've been public, and that -- so that's how we think about it.
We will take our next question from Alex Kramm at UBS. Please go ahead.
Thank you. And then, sorry if there is background noise, clearly you caught me by surprise. I guess actually touching upon this last point you just made. If you just assumed that the Company or MoneyGuide will continue to grow at that mid-to high-teens growth rate that they over the next 2 to 3 years. How should we would be thinking about the cost side of it? Are the costs growing slower? Is the margin expanding? I know you said, there is scale benefit, but maybe you could shed -- put some meat around it in terms of standalone basis. What would have the cost inflation of that business all else equal?
So, what we guys are looking at right now is, we've got an investment in the new product blocks, that will have, I think margins will slightly expand over the next couple of years, but it's not going to be a rapid expansion of margin over the next two three -- it may never be a rapid expansion because I haven't seen very many FinTech businesses, if any, that have EBITDA margins in excess of 60%. So we are in excess of 50% with the business right now.
I could see it overtime, growing but it's not going to grow from 50% to 80%. I think it's going to be more like a longer-term increase at much less than 80% and lot closer to 60%. There is some continued investment that we're going to wants to make to get the new product offering out and new products are the lifeblood of -- they are the fuel for continued or continuing above average growth rates. And so, we expect that the strong organic growth will last for let's say a foreseeable future of two to three to four years out. And beyond that if anybody has a -- I still don’t have a crystal ball beyond that.
And then just lastly can you maybe talk dis-synergies or potential dis-synergies for a second? And maybe you touched upon this already with the competition discussion, but you said this is very integrated with a lot of players maybe some of those are competitors. So, is there a risk that we wake up one day in the year or two when somebody has decided what's -- these guys are owned by a competitor we don’t want to use this product anymore and we are going to roll off it, and there is somewhat significant also hit to the revenue base there.
There is always the risk that there is some client at the margin that would like to do business with a small company, smallish company rather than a big company, but for every one of those I think that there is two probably three that feel more comfortable doing business with a larger company. So when we look at the client base that they currently have, banks, wealth management companies, insurance companies, registered investment advisers. It looks remarkably similar nearly identical in profile to what Envestnet has today.
So, with respect to competitors, there aren’t significant number of firms that are using MoneyGuide today that are different than the firms that use Envestnet today. So, we see very little risk systematically in a client base or segments of their client base, not wanting to continue to do business with a combined Envestnet and MoneyGuide. And they reached the same conclusion in that, we were the best partner for them to really ensure not only client net continuity but one step beyond that client strengthening. I believe that assessment of there is shared by our organization.
And we will take our next question from Devin Ryan with JMP Securities. Please go ahead.
Just a few granular follow-ups. So, I guess first just thinking about the contract here and the customers, I would assume that they are pretty sticky, but any detail on kind of attrition rates for their business? And also just how volatility in the equity markets affects business I mean to some degree that you would think that you know that appetite for your financial plan would actually increase the volatility? And I’m curious overtime if you've been able to study the business and just some of the trends on attrition and kind of customer duration?
So, there is a very degree of renewals within the adviser and enterprise level, significantly higher than 90% and it compares favorably with the effective renewal rates of the Envestnet Software-as-a-Service or subscription-based recurring revenue offerings. So that's a positive. The churn if you will is low single digits and that's a good thing. With respect to what happens over, obviously it’s not, its subscription-based recurring revenue it’s not asset base recurring revenue. But what we’ve seen in our business. in the Envestnet business in the past, and we have no reason to believe that MoneyGuide business is different than this is that when market slowdown there is an indirect negative effect for the adoption of new technology generally, and that's whether it's asset base price or subscription-based price.
So if you're creating a bold scenario, I don’t really need to give any inputs. But if you’re creating a bare scenario, under a market scenario where the asset values decline, off course our asset base revenue is directly affected. But it's also in directly affected because advisers close rate or success rate declines in tough markets, it’s precisely those kind of markets that advisers may use financial planning software more extensively, but their willingness to take on obligation or new software is weaker when market are good. So, there is an indirect negative effect that happens in tough markets even for subscription based software in FinTech.
And then just want to clarify as well. So on the revenue expectation kind of the growth in the mid-to-high-teens in that assumption. Can you maybe give is the sense of just the cadence of that the velocity of years? Has that business been roughly at that level or they accelerate or decelerating? Just curious, I understand that the synergy of the two businesses, but where this business is coming from?
So, this has been around since 1997, it's got the large and satisfied pace. And so what happened over the last several years is that the revenue delta has grown, but the revenue percentage change is decelerating, which just -- it's the wild numbers. So, we're very pleased by the app, the absolute growth rate. We are even more pleased by the absolute revenue delta that we see that there has been and what we see going forward into the future.
And then just last on here on the 30 million of additional retention payments. Is that across the firm or is that kind of key executives? I am just curious, it's going who that's to within the firm? And then just, but just to be clear on our numbers here, I mean it doesn’t sound like there is really much of any expense synergy in the accretion numbers. I just want to clarify and make sure that we are doing that right?
Right. Number one, not a lot of expense synergy in the numbers, okay. Number two, the up to 30 million includes retention for a senior management as well as retention for rank-and-file and also some award for rank-and-file employees who may not have been direct shareholders.
And so there is some level of earn out on that piece as well. Is that right?
Yes. I would say kind based retention is probably a better way of talking about it's in earn out.
Service element to earn the reward -- award.
I believe we are through the queue and I think there is another -- we are wrapped up, and I appreciate your time. Thank you for the very good questions and the work that we've done in support of Envestnet. Bye.
And this does conclude today's call. Thank you for your participation. You may now disconnect.