Advisor Group and Ladenburg Thalmann reached a merger agreement to create one of the nation's largest independent broker-dealer (IBD) networks with $450 billion in assets. The deal values Ladenburg Thalmann's five IBDs at $1.3 billion.
Though both firms described the transaction as a merger, the new giant IBD will operate under the Advsor Group name. When Advisor Group was acquired this past spring, Reverence Capital, which purchased a controlling 75 percent interest in Advisor Group, reportedly valued that firm at about $2.2 billion according to investment bankers.
The combined entity would also generate about $3 billion in revenues with 11,500 reps. The transaction is contingent upon the approval of Ladenburg shareholders.
It is believed other private equity firms, including Centerbridge, Cetera owner Genstar and Warburg Pincus, parent of Kestra Financial, were all interested in acquiring Ladenburg. Earlier this year, Genstar held serious talks with Advisor Group but failed to conclude a transaction. Several months later, Advisor Group reached a deal with Reverence Capital.
Indeed, the Advisor Group-Ladenburg Thalmann deal continues the trend towards consolidation in the IBD universe. In September, 2018, Genstar paid $1.7 billion to acquire Cetera. Last summer, Warburg Pincus shelled out an estimated $700 million to purchase Kestra.
In a prepared statement, the two parties indicated the expanded Advisor Group organization will continue to be led by current Advisor Group CEO and President, Jamie Price. Members of both IBD networks' executive teams will remain with Advisor Group management.
Price said that the goal was to maintain a "small-firm feel" despite the size of the new enterprise. Investment bankers observed that what was strking about the transaction was the speed with which the two parties negotiated the deal. It is believed the two parties only started talking seriously in late September.
The prepared statement added that none of Ladenburg's five IBDs will be merged with any of Advisor Group's four IBDs, reflecting "both companies' commitment to a multi-brand model." Usually in IBD network mergers, some of the entities are combined to slash operational expenses.
Many observers think that the new Advisor Group eventually will look to streamline operations. However, they expect that it will proceed cautiously so as to minimize transitional friction. Other IBDs that have immediately sought to cut costs in the weeks following an acquisition frequently wound paying the price in terms of high advisor atttrition and back-office bottlenecks.
"We believe that the investments necessary for competitively differentiated technology, practice management, products and service excellence require a greater level of scale than either of our companies can achieve on a stand-alone basis," Price said. "In fact, as our two organizations learned more about each other’s platforms, it became obvious that our strengths rounded out each other’s offerings, and combined, we will have one of the most comprehensive and best-in-class platforms for financial advisors in the industry."
Advisor Group’s four IBDs—Royal Alliance, SagePoint Financial, Woodbury Financial Services and FSC Securities—generate about $1.7 billion in revenues in 2018. In contrast, Ladenburg’s five IBDs—Securities America, Triad Advisors, Securities Service Network, KMS Financial Services and Investacorp—produced about $1.4 billion in annual revenues last year.
Advisor Group plans to remain a multi-clearing and multi--custodial network, using both Pershing and National Financial, a unit of Fidelity. In addition, sources said that two Ladenburg subsidiaries, Triad and KMS, have relationships with both Schwab And TD Ameritrade at a time when a growing number of IBD reps are opting to reconfigure their businesses and go RIA-only.