Dallas’ Blucora to sell its Tax Act business for $720 million following proxy fight

Dallas-based financial tech firm Blucora will sell its tax software arm, TaxAct, for $720 million to pay down debt and streamline its business, something an activist investor has been pushing it to do since last year.

An affiliate of London-based private equity firm Cinven will take over TaxAct, which has over three million consumer users and about 21,000 professional users. The deal is expected to close by the end of the year.

Following the completion of the transaction, Blucora will streamline its operations by rebranding as Avantax and focusing on its tax-focused wealth business, including its independent broker-dealer, Avantax Wealth Management, and its employee-based registered investment adviser, Avantax Planning Partners.

“We will be laser-focused on further differentiating ourselves as the partner of choice for tax-focused financial professionals, tax professionals and CPAs,” Blucora CEO Chris Walters said in a Tuesday call with investors.

The deal will allow Blucora to immediately pay down debt, provide returns to shareholders and reinvest in Avantax’s growth, said Walters, who became CEO in January 2020. Blucora expects to net about $620 million from the deal, with as much as $450 million going back to shareholders.

Since last year, Blucora has had to defend its two businesses after a proxy fight with shareholder Ancora Holdings Group called company leaders into question.

Ancora said the tax business should be sold and questioned whether the company was “incentivized to maintain a bigger, bloated holding company model rather than a focused, streamlined business.” This year, it has pushed for changes at software company Everbridge, toy maker Hasbro and department store chain Kohl’s.

Walters told investors he could grow the company’s assets under management by $2 billion by using its tax arm to recruit CPAs to its wealth management arm.

“While the decision to sell TaxAct may come as a bit of a surprise for some of you, the board has been consistent in its position to remain open to opportunities to create or unlock value for shareholders,” Walters said during Tuesday’s investor call.

Blucora’s tax software segment had revenue of $6.7 million for the past three months, up 34% over the past year. Its wealth management business produced revenue of $165 million, down 2.4% from the same period last year.

The tax preparation services market in the US has grown to $11.6 billion, according to market research firm IBIS World. Earlier this year, a potential threat to the for-profit tax prep industry came in the Inflation Reduction Act.

Congress approved $15 million for the Internal Revenue Service to study options for an updated free government-backed tax filing program. It would replace its current free system, which isn’t widely used.

Blucora has about 600 employees in the Dallas area, with most working in wealth management, Walters said. Walters said he expects Cinven to keep the tax business team intact.

Despite rising interest rates and high inflation, Walters said the wealth management business is “doing well if not better than ever.”

“Our outlook is incredibly rosy over the next year,” he said.

Centerview Partners LLC and PJT Partners are acting as financial advisers and Haynes and Boone LLP and Sidley Austin LLP are serving as legal advisers to Blucora.

Financial tech firm Blucora is moving its headquarters to a new building in Cypress Waters

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