787 Seventh Avenue, 49th Floor
Headquartered in New York, NFP operates a national distribution network with over 1,300 producers in 40 states and Puerto Rico consisting of more than 135 owned firms and more than 180 affiliated third party distributors specializing in life insurance and wealth transfer, corporate and executive benefits, and fee-based financial planning.
National Financial Partners Corp. (NFP), formed to bring small independent financial services firms beneath one umbrella, hopes to succeed where others have failed. By maintaining an entrepreneurial spirit among its member firms, NFP expects to drive growth internally as well as through acquisitions. NFP targets high-net-worth individuals and small- to mid-sized companies for its product sales.
High Expectations: 1998-99
National Financial Partners' $125 million in seed money came from Apollo Management LP. The leveraged buyout firm, based in New York, received 125 million shares of NFP for its investment. For its part, NFP planned to begin its own buying spree, attempting to consolidate independent companies in the business of advising the nation's richest individuals as well as entities offering financial services and products to mid-sized corporations.
NFP offered a combination of cash and stock for 100 percent ownership of the financial planning firms and independent insurance brokers it sought to buy. Once under the NFP umbrella, the owners were promised continuing autonomy and access to a broader range of products and services for their clients and technological upgrades for their offices.
"Robert L Rosen, founder and chairman of the six-month-old NFP, described his firm's concept as a producer group with the added element that member firms have an equity share in NFP and will be able to obtain capital infusions from it, if needed," wrote Carole Ann King for National Underwriter Life & Health in April 1999.
Thus far, NFP had spent $87 million for 28 companies with combined yearly earnings topping $15 million. NFP expected to complete 20 more deals by the end of May. During its first five years of operation, NFP predicted, a total of 300 firms would join the fold.
NFP received a cut of each firm's revenue stream, 40 to 50 percent of earnings. According to Best's Review, NFP was wooing firms with a loyal customer base, strong local ties, good renewal rates, and asset gathering ability.
In April 1999, Rosen tapped Jessica Bibliowicz, the daughter of his former boss, to lead NFP. "Bibliowicz gives the firm star power," wrote Theresa Miller for Best's Review. Much had been written about her father, Citigroup CEO Sandford Weill, and Bibliowicz had been etching out her own presence on Wall Street.
Her introduction to the world of finance began at home, listening to her father recount his business deals. As a teenager, she worked the summer months for his company, then graduated from Cornell University, her father's alma mater. Work connections with her father continued after college, first, with American Express Co., where Weill served as president.
Marriage and a stint with Shearson's asset management division followed--Shearson Loeb Rhoades, Weill's company, had been purchased by Amex. At Prudential Securities Inc., which was headed by a family friend, she rose to director of sales and marketing for mutual funds but left after failing to move further up the ranks.
Back with one of her father's operations, Smith Barney, she ran the mutual fund business, later adding insurance and estate planning, but she exited over a conflict with Weill's heir apparent.
Prior to joining NFP, Bibliowicz landed positions as president and chief operating officer for New York investment advising firm John A. Levin & Co., but she wanted more of a challenge. When the job offer came to build a new company, she took it.
Challenging Path: 2000-01
Bibliowicz believed smaller independent financial firms would benefit from their affiliation with NFP. The ever changing world of technology burdened their budgets. Moreover, big name competitors had the upper hand in name recognition. As part of NFP, some of that load would be lifted.
By early 2001, NFP held 85 firms and a market value of about $219 million. But, Bibliowicz was behind schedule. To boost acquisitions, NFP offered a finders fee for leads on firms interested in selling out. During the first six months of her tenure, she brought in 23 firms, though maintaining that pace would prove difficult.
Companies declining the offer cited loss of independence, dissatisfaction with the monetary rewards, and possible risk to their name from association with other member companies that might be involved in improprieties, according to American Banker. The business environment also played against Bibliowicz's cause. Predictions of sweeping changes in the financial services industry following the Gramm-Leach-Bliley Act of 1999 had not panned out. Furthermore, the stock market slumped, putting a damper on initial public offerings (IPOs); and with the economy lagging so did the growth of wealth.
Although Bibliowicz had an IPO in her sights, other possibilities existed. Larger financial companies interested in attaining high-net-worth clients might very well look to NFP itself as a potential target for acquisition, something Bibliowicz had not ruled out.
"Yet, selling National Financial Partners to a bank, insurer, brokerage, or any other company would not only be less lucrative than an IPO, it may also make her someone else's employee--perhaps even her father's--again. And even that scenario may be optimistic," wrote Jacqueline S. Gold for American Banker.
NFP's plans for a public offering went forward, but a bid by Citigroup Inc. to underwrite was scuttled by an investigation, in the later half of 2002, by New York Attorney General Eliot Spitzer over the possible influencing of a research analyst's opinion by Weill. The situation, combined with the father/daughter connection, threatened to taint the small company's entrance on Wall Street.
While NFP touted the benefits for smaller companies entering the network, some companies appeared to fare better than others under the system. Fee-based advisers, for example, were at a disadvantage to commission-based advisers, due to NFP's vision of being a "conduit for products," according to Investment News. Financial planners and advisers represented 25 percent of member companies. Estate planners and insurers made up 40 percent and corporate benefits and executive benefits planners the remaining 35 percent.
Out in Public: 2003-04
By around mid-year 2003, NFP had acquired about 138 firms for about $375 million. More than a dozen companies had failed to do what Bibliowicz was attempting, to successfully group independent financial advisers, observed Business Week. "The problem, says Dennis Gallant, of consultants Cerulli Associates, Inc., is that advisers tend to be fiercely independent entrepreneurs who like to work for themselves. 'It's like herding cats,' he says." Bibliowicz helped keep member firms on a growth track with financial incentives and disincentives.
NFP closed at $26.25 at the end of its first day of trading, September 18, 2003.
The financial services industry brought forth nearly half of the IPOs introduced on the year; they were among the first to benefit from an upswing in the economy, according to the New York Times.
Goldman Sachs, Merrill Lynch, and J.P. Morgan took the company public, with Citigroup out of the picture. A "preferred relationship" with Citigroup division, Travelers Life, continued. NFP had product agreements with some of the country's largest financial concerns, including her father's company.
Bibliowicz held 1.4 percent of the company she had brought from $10.5 million in losses to its first profitable year, 2002. The IPO raised $239 million from 10.4 million shares at $23 per share. The company's market value was $850 million. With the number of independent estate advisers, benefits consultants, and financial planners in the United States an estimated 4,000, NFP was afforded a significant growth potential. The company predicted 20 percent annual gains in profit per share via acquisitions and internal growth. But with its member companies' worth less than the selling price of NFP stock, the company looked overvalued, according to Barron's.
Bibliowicz rejected the term roll-up when applied to NFP. Roll-ups were viewed as companies whose ongoing growth largely depended on acquisitions. Bibliowicz maintained NFP's structure and encouraged continuing internal growth. During the first half of 2003, internal revenue grew by 13 percent; for prior years, 25 percent in 2000, 14 percent in 2001, and 6 percent in 2002.
Internal growth depended on member firms pulling in business as aggressively as they had when they were independent operations. Bibliowicz, according to American Banker, viewed client relationships to be the industry's best asset. Therefore, principals of acquired companies were required to stay with their companies for a minimum of five years following acquisition. Owners were to be in the middle rather than end of their careers, seeking an exit strategy.
Consequently, NFP had no plans to market NFP as a brand, preferring to allow member companies to maintain their propri- etary brands while accessing the products of others in the network. Boutique firms had historically dominated the high-net-worth market, observed Robert Julavits in American Banker.
Revenue in 2003 grew 33 percent over 2002, reaching $479.6 million. "NFP did a couple things right," Mark Tibergien, a principal with Moss Adams LLP in Seattle told Investment News. "It got funded early, acted quickly and executed its plan."
By March 2004, NFP had paid $418.5 million in cash and stocks to acquire small firms for its network. Future purchases would lean toward insurance agents and corporate- and executive-benefits firms and away from financial planners and investment advisers, according to Investment News.
The investigative spotlight of New York Attorney General Eliot Spitzer was turned on NFP in 2004. Spitzer was already examining the agreements between insurers and commercial brokers of the three largest brokerages in the country, March & McLennan Inc., Aon Corp, and Willis Group Holdings. NFP's property and casualty operations licensed in New York, which contributed less than 5 percent of 2003 revenue, was the focus of the probe.
Principal Competitors: Aon Corporation; Marsh & McLennan Companies, Inc.; Willis Group Holdings Limited.
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