Boston Private Financial Holdings is courting new wealth customers and high-tech entrepreneurs with the acquisition of the Silicon Valley investment advisory firm Sand Hill Advisors.
The Boston company is buying the Menlo Park, Calif., firm for an estimated $16 million, 70 percent of which will be paid in cash and 30 percent of which will be in the form of Boston Private Financial Holdings common stock. The transaction is scheduled to close on July 21.
The Boston company chose the Northern California market for expansion as part of its strategy of serving new wealth markets. In the last 10 years, Silicon Valley and New England were the top beneficiaries of incremental investment dollars and new business growth, said Boston Private Financial Holdings Chairman and Chief Executive Officer Timothy L. Vaill. The holding company has almost $4 billion in assets under management.
“We are approaching the new wealth markets as opposed to the imbedded, inherited wealth markets,” Vaill said.
Boston Private sees the new wealth market as its opportunity to gain market share in private banking and investment management. People who inherited wealth from their families, such as shipping magnates and textile mill owners, have probably already established relationships with private banks, Vaill said. The bank is targeting those that have become affluent in the last 25 or 30 years. Many people in this group made their money in real estate, technology and the stock market. The average age of the bank’s clients is 42.
“Those people haven’t necessarily established relationships in the financial services area,” Vaill said. “It’s an opportunity to gain market share. It gives us a chance to fight for that business. A lot of them are beginning to think of investment programs and mortgages for their homes.”
Boston Private hired the New York investment banking firm Berkshire Capital to find a company in Northern California that would reach the new wealth markets and expand the company’s geographic diversity.
“We decided we simply had to put a foot down there and establish a presence,” Vaill said.
He plans to continue to increase Boston Private’s presence in New England, with the goal of becoming the region’s dominant wealth management firm in the next five to 10 years. At the same time, the company will “begin a very aggressive focus” in the Northern California market, he said. Over the long term, the company could expand into other markets with high concentrations of new wealth.
“We have identified half a dozen other places in the country where new wealth is being created,” Vaill said. “We will do them carefully one at a time.”
Vaill joined Boston Private in 1993 after working more than 20 years at The Boston Co. and Fidelity Investments. In addition to leading the holding company, Vaill is president of Boston Private Bank & Trust Co., a state-chartered commercial bank with $525 million in assets. The bank specializes in private banking and investment services for individuals, families and businesses. Its services include Internet banking, mortgages and commercial loans. Boston Private and Sand Hill Advisors have a similar investment style of balanced equity accounts with an eye toward growth, Vaill said.
Sand Hill Advisors manages approximately $900 million and has 180 clients with yearly revenues in excess of $5 million. Chief Executive Officer Gary Conway and President Jane Williams, who founded the firm in 1982, will continue to lead Sand Hill Advisors, which will operate as an independent subsidiary of Boston Private. The company is known as an expert in concentrated or single-stock positions. About half of its assets under management are in a concentrated form.
“The big thing is the geographical marketing distribution they have in Northern California,” Vaill said. “They’re dealing with single-stock positions, and seeing a lot of companies going public and people owning hundreds of thousands of dollars in single-stock issues.”
The deal will add to Sand Hill’s financial planning and cash management services, Conway said.
High-Ranking Women
The investment management market in Northern California has grown considerably with the computer industry over the last 20 years, Williams said. Sand Hill employs a number of women that work with female decision-makers in Silicon Valley.
“A majority of our senior investment staff are women, and that has proved to be a significant advantage when serving this diverse California marketplace,” Williams said. “We believe that this competency will add another dimension to Boston Private’s capabilities.”
Boston Private Financial Holdings also operates Westfield Capital Management Co., which serves high net worth individuals with private equity partnerships and small-cap growth strategies, and RINET Co., which provides fee-only financial planning, investment management and tax planning for high net worth individuals and families. Both subsidiaries are based in Boston.
Boston Private’s primary focus will remain on the New England market. The bank opened a branch at 500 Boylston St. in Boston’s Back Bay last month. Although Boston Private Bank has no immediate plans to open further branches, Vaill said he would like to open branches in Cambridge and Westborough, and on the North Shore and the South Shore. In addition to the Back Bay office, the bank has branches in Post Office Square in Boston and in Wellesley.
“We still think that there’s terrific opportunity in this region,” Vaill said. “This is our number-one priority and it always will be.”
In the first quarter of this year the company reported net income of $1.8 million, a 29 percent earnings per share increase over the previous year. Boston Private reported almost $4 billion in assets under management, a 38 percent increase from the year before, due in part to the acquisition of RINET Co. A total of 56 percent of the company’s revenue came from fee income and other non-interest income.