Price was too high for Wilshire sale

Wilshire Associates Inc. was on the selling block in recent months, but the gap between what founder and majority owner Dennis Tito is seeking and what strategic buyers and private equity firms are offering for the Santa Monica, Calif.-based firm couldn't be closed, according to investment bankers and potential bidders who declined to be named.

Opinions of industry veterans familiar with the aborted sale are mixed on whether the 71-year-old Mr. Tito is likely to restart the process any time soon.

Mr. Tito, through a spokeswoman, declined to comment.

But Jonathan Stern, a New York-based managing director with investment bank Berkshire Capital Securities LLC, confirmed that Wilshire's management team, including Mr. Tito, hired Berkshire after “several firms” approached Wilshire about a possible sale. While declining to name names or discuss details, Mr. Stern said that after exploring the possibilities, Wilshire's managers and owners decided last month that they wanted to “remain a privately held firm,” bringing the sales talk to an end.

Industry veterans say Mr. Tito's initial hefty asking price for Wilshire — between $350 million and $400 million — quickly narrowed the list of potential strategic buyers to a handful with deep pockets: Mercer, backed by parent company Marsh & McLennan Cos.; publicly listed Towers Watson & Co.; and Hewitt EnnisKnupp, backed by parent company Aon Corp.

Bankers and private equity players who evaluated Wilshire said growth forecasts presented by Berkshire Capital were much higher than the actual growth Wilshire has been able to log in recent years for its book of businesses — composed of investment consulting, manager-of-managers fund management services, an analytic tools division and a suite of private markets/alternative investments offerings.

Also standing in the way were demands from parties interested in bidding to be indemnified from potential legal damages Wilshire could face. In June 2011, the $2.7 billion Kern County Employees' Retirement Association, Bakersfield, Calif., sued Wilshire, alleging breach of fiduciary duty with regards to the investment consultant's vetting of Westridge Capital Management, a firm whose owners were alleged to have run a Ponzi scheme.

Bankers cited Mercer as a potential strategic bidder asking Wilshire to stand ready to cover millions of dollars in potential legal damages. A number of private equity investors were likewise interested in Wilshire, but seeking guarantees.

Mercer has been a leading consolidator in an industry rife with mergers and acquisition activity in recent years. In January 2011, the consulting firm moved to bolster its endowment and foundation business with the acquisition of St. Louis-based Hammond Associates, followed six months later by the acquisition of Evaluation Associates' non-public fund consulting operations.

Even so, Mercer's October 2010 decision to relinquish its retainer investment consulting relationships with public defined benefit plans — over concerns that underfunded public clients could prove increasingly litigious — might make its interest in acquiring the consultant to the $229.6 billion California Public Employees' Retirement System seem incongruous. According to industry veterans, the principal charm for Mercer is Wilshire's $71 billion, U.S.-focused fund-of-funds money management operation — a relatively high-margin business to which Mercer has been devoting growing resources in recent years.

Asked about talk that Mercer was in discussions with Wilshire before the sales process was suspended last month, Mercer spokesman Charles Salmans in New York said: “As a matter of policy, we don't comment on rumors or speculation involving mergers and acquisitions.”

In an e-mail, Carl Hess, New York-based global head of investments with Towers Watson, likewise said his consulting firm would decline to comment on talk that Towers Watson was kicking Wilshire's tires.

As for interest in Wilshire from private equity firms, some bankers note that the company wouldn't be a typical target for a buyer looking to cut fat, reduce inefficiencies and then profit by offering up a leaner, meaner entity to the market.

Instead, several bankers argue that under Mr. Tito, who controlled more than 65% of Wilshire's stock as of April 2011, the company has been kept too lean, with not enough resources being channeled back into Wilshire to fund potential growth.

According to people familiar with Wilshire's sales exercise of the past few months, the company based its double-digit revenue growth forecasts in part on a recent ramping up of its sales and distribution efforts. Under a “One Wilshire” campaign launched last year, the firm hired close to 20 new sales people, led by J.J. Wilczewski, managing director, to increase sales across the company's suite of products and services, noted one industry veteran, who declined to be named.

He predicted Mr. Tito is likely to revive sales talks soon, or run a growing risk of talented executives being picked off by the competition.

One private equity player, who likewise declined to be named, agreed that Wilshire hasn't been investing enough “in its people, sales, marketing.” But until issues such as the Kern County lawsuit are resolved, it will be difficult to lure bidders back to the table — and that could take years, he said.

Bankers said Mr. Tito's latest attempt to find a buyer for Wilshire is at least the second time he's shopped his company over the past decade.