We examine the next stage for AITi Global and who may buy this business, as it prepares for a possible go-private move.

(Yesterday, an earlier version of this news analysis appeared in Family Wealth Report, our sister news service. AITi Global operates in a number of jurisdictions, and the strategy of this organisation is therefore internationally significant.)

It is likely that AlTi Global, the RIA with $49 billion in AuM that went public via a SPAC in 2023 and whose share price has nosedived since, will be bought and taken private before the year’s end.

What is not clear is who the buyer will be. CityWire has reported that AlTi is negotiating with US asset manager Franklin Templeton, but several other strategic buyers, including Corient, have also been kicking the tires but have walked away after a closer look. The final price and terms, which have precluded a deal getting done so far, are also very much up in the air. 

What is undeniable, however, is what RIA attorney Rich Chen describes as the “highly consequential” rights, preferences and protections of AlTi’s largest minority stakeholders, Allianz X, the venture capital division of the giant German insurer Allianz and Constellation Wealth Capital, one of the leading RIA minority investors headed by veteran dealmaker Karl Heckenberg. 

Allianz and Constellation’s positions
According to SEC filings, both Allianz and Constellation are entitled to a very generous 9.75 per cent compounding PIK (payment in kind) dividend. Allianz will be paid half in common stock and half in new Series A preferred stock and Constellation will receive new Series C preferred stock. The dividend rate on the preferred instruments would be reduced if AlTi’s stock price hits $12.50. AlTi’s thinly traded shares have been under $4 for most of the year, 60 per cent less than its offering price. 

The two minority investors also have around $350 million of combined convertible preferred stock, conversion rights into AlTi common stock at a conversion price of $8.70, redemption rights and warrants for a combined seven million shares of Class A common stock at a strike price of $7.40. 

In addition, Allianz has substantial governance influence, including two seats on AlTi’s board of directors and a representative on the Transaction Committee, which must approve any acquisition offer before management can take it to the full board. 

That’s important because at least three committee members, including Allianz’s designee, must approve any proposal valued above $175 million, noted Sara Mostafa, a partner at Kupfer Law.

How minority rights impact a sale
Any potential sale will be significantly impacted by the formidable rights of Allianz and Constellation, which have invested about $450 million in AlTi to date, RIA executives who have reviewed the SEC filings agree.

“What jumps out to me is how effectively Allianz and Constellation reportedly protected themselves against the downside while preserving their ability to participate in the upside of a future sale,” said attorney Brian Hamburger, CEO of MarketCounsel.

“The change-of-control provisions are probably the most significant in evaluating a potential transaction,” Hamburger continued. “Broadly speaking, the preferred investors can participate in the transaction on an as-converted basis if that produces the better result, while retaining the protection of their accumulated liquidation preference. In other words, they have an economic floor beneath them that the common shareholders don't have.”

“My main takeaway is that Allianz and Constellation do not simply have passive minority equity positions,” said Chen, managing partner for the Brightstar Law Group. “In a change of control, the minority investors generally have the ability to receive the value associated with conversion into common stock or, if more favourable, the applicable preferred liquidation preference ahead of common shareholders. In practical terms, a buyer would need to account for a substantial and growing layer of preferred capital when determining the economics of an acquisition.”

Problems getting a deal done
How the economics are determined, is, of course, why a potential acquisition has been stuck in limbo for most of the year.

Valuation, price and terms are the sticking points, amplified by the preferences owed to Allianz and Constellation.

The compounded PIK dividends have grown to about $350 million of senior claims that must be paid ahead of any distribution to common shareholders if there is a sale, according to an RIA consultant and former dealmaker who has examined AlTi’s financials.

“Add the TRA (tax receivable agreement) and the warrants and the true fully burdened cost to take AlTi private is roughly $887 million, against a projected equity value of only approximately $460 million based on $4 a share,” the consultant estimated.

While Allianz and Constellation preferences must be paid first, common shareholders, of whom Allianz is the largest, followed by the Qatari royal family’s Il Waddi Holdings, will also expect, and presumably demand, a premium over the current share price if there is a transaction.

The resulting massive valuation gap between what AlTi appears to be asking to make everyone happy and what buyers believe the firm is worth has resulted in a stalemate that will only be broken if Allianz and Constellation are willing to take a haircut, the consultant maintained. “They have a choice of losing a little now or losing more the longer this drags on,” he said.

While the rights and preferences of the minority shareholders are extremely favourable, they are actually just negotiating points for a potential sale, according to a financial analyst and fund manager who reviewed the SEC filings.

“It’s a very complicated deal and AlTi is not in a good position at the moment,” the analyst said. “For a sale to go through Allianz and Constellation have to be willing to give something up and then decide how much.”

Minority lessons for RIAs
The AlTi situation also has relevance because minority investments are a popular way for RIAs to raise capital and because Constellation, which just bought a stake in Dynasty Financial Partners -backed Chicago RIA Aaron Wealth, is arguably the industry leader.

So, what are the lessons for RIAs considering taking a minority investment?

Industry attorneys who specialise in litigating deals all stress the importance of realising how a minority stake impact can impact a subsequent sale.

RIAs shouldn’t treat a minority investment as simply an ownership stake, Mostafa said. “Minority investors can negotiate meaningful governance and economic protections that can materially influence who controls an exit and how proceeds are distributed,” she said.

“You can't evaluate minority capital solely by asking how much dilution you're accepting today or what the stated preferred return is,” according to Hamburger. “You really need to model what happens in the next transaction.

“Liquidation preferences, PIK accruals, conversion rights, change-of-control rights, warrants, puts, and governance provisions can dramatically alter the economics when control is ultimately sold,” he said. “The capital can be very attractive when it is raised, but founders need to understand how much of the economics and flexibility of a subsequent sale they may be giving away in return.”