Kochis Fitz, Quintile to merge

In a highly unusual deal, two top California wealth managers, Kochis Fitz Tracy Fitzhugh & Gott Inc. and Quintile Wealth Management LLC, are merging.

The combined firm will manage or advise more than $5 billion in assets for 385 clients, making it one of the three biggest independent registered investment advisers in the country, according to principals of both firms. The new firm will temporarily be known as Kochis Fitz/ Quintile.

The merger, to be announced today, is expected to close at the start of next year.

It is shaping up to be a record year for mergers and acquisitions involving RIAs, fueled in large part by capital from roll-ups and other outside investors (see related story, Page 27).

But principals from Kochis Fitz and Quintile said that their deal is unique because it allows them to remain independent. No outside investors were brought in as part of the transaction, and the new firm will have 32 “owner employees,” each with varying ownership stakes in the company.

“I think it’s the first time firms of this size have joined together,” said Tim Kochis, co-founder and chief executive of San Francisco-based Kochis Fitz, which opened its doors in 1991. The merger is “a clear alternative” to an acquisition by a broker-dealer, a bank or a roll-up firm funded by private equity, he said.

“No one has thought of it and gone through the effort,” Mr. Kochis said. “It’s not easy integrating these two firms.”

“It’s a competitive advantage to remain independent and establish an alternative model,” said Rob Francais, chief executive of Quintile and a founder of the Los Angeles-based firm, which opened in 2002.

The new firm will continue to grow through “mergers and opportunistic hires,” Mr. Francais said.

“Neither of these firms needed to sell,” said Charles Goldman, president of Schwab Institutional of San Francisco, which is a custodian for both Kochis Fitz and Quintile.

The firms’ areas of focus in wealth management are complementary, said Mr. Goldman.

The merger also solves problems involving succession planning, one of the prime reasons advisers sell their businesses, Mr. Kochis and Mr. Francais said.

Principals from both firms stressed that no top executives will leave as a result of the merger. Mr. Kochis will be chief executive of the new firm until mid- to late 2009, at which point he will hand over the reins to Mr. Francais.

Until then, the latter will serve as chief operating officer of the combined entity.

“No one’s cashing out, no one’s retiring,” said Mr. Kochis, who is well-known in the financial planning community. “It’s not an exit strategy.”

The new firm will have an un-usual ownership structure. It will have 68 employees, including the 32 owner employees.

Mr. Kochis will be the largest single shareholder, owning a little more than 13% of the firm’s equity.

Of the new firm’s 32 owner em-ployees, 18 will be new equity participants.

“No cash exchanged hands,” said Mr. Francais, who characterized the merger as “an expansion of shareholders and investors.”

“The firm is more stable because employees are owners,” he said.

The firms jointly hired an investment banker to determine the value of the new company, the executives said. They declined to state that valuation.

The executives said that the two firms are complementary, both in terms of their offerings — Kochis Fitz specializes in managing concentrated stock positions for wealthy executives, while Quintile has legal services specific to a multifamily office — and their geography. The new firm will be the largest independent RIA in California, they said.

Both firms said they’ve had many suitors who showed “intense and unrelenting” interest in buying them in the past. But the desire to remain independent was paramount.

“It’s not doing the right thing for the client if we took the easy way out and sold to the highest bidder,” Mr. Kochis said.

One downside: Mr. Kochis and Mr. Francais each said he felt “grief” about losing his firm’s name.

Bruce Kelly can be reached at [email protected].