Centerbridge is one of several bidders as Lightyear seeks $2.2 billion to $2.7 billion.
Lightyear Capital is expecting bids for its independent broker-dealer network, Advisor Group, to be submitted tomorrow, according to investment bankers. Lightyear is seeking between $2.2 billion and $2.7 billion, an indication of the surging value it believes private equity firms are willing to pay for IBD networks.
Earlier this week, Bloomberg reported that Centerbridge, a private equity firm, had emerged as the likely buyer and a deal might be finalized by the end of this week. Several investment bankers confirmed that Centerbridge was indeed in the running. But they added that several other private equity funds were also seen as serious bidders, and Centerbridge was not necessarily the front-runner. They did not expect any transaction to be finalized this week.
Lightyear reportedly is looking for an all-cash deal and is expected to push for a price closer to $2.7 billion than $2.2 billion. The firm believes it has built one of the most efficiently run privately owned IBD networks, with a lean management team. One investment banker said Lightyear was willing to walk away since Advisor Group is performing very well in 2019 and has little debt.
A spokesperson for Advisor Group issued a terse statement. “As the company has stated previously, it is well-known that private equity firms are interested in this industry. Given the success of Advisor Group, it is not surprising this would lead to deal speculation about the company, and we don’t comment on speculation.”
Lightyear’s decision to seek a buyer for Advisor Group comes after two major IBD acquisitions in the last year. In October, Genstar paid $1.75 billion for Cetera Financial Group, and last month Warburg Pincus paid slightly over $700 million for Kestra.
Shortly after Genstar completed the acquisition of Cetera, the stock market suffered a 19.8 percent correction in the fourth quarter and the junk bond market, where most leveraged acquisitions are financed, dried up completely. With recession fears, there was a consensus that Genstar had overpaid for Cetera.
But since Christmas Eve, the stock has staged an impressive comeback and many IBDs reportedly enjoyed strong first quarters. Moreover, after the Federal Reserve’s announcement that it would put any future interest rate increases on hold, the market for leveraged buyout financing returned to life. The Genstar-Cetera transaction now looks a lot more reasonable.
Back in January, Genstar and Lightyear held exploratory talks about combining the two firms and creating an IBD network rivaling LPL Financial with nearly 15,000 reps. But both the equity and junk bond markets were just beginning to recover, financing was uncertain, and the two parties could not come to terms. After talks broke down, Lightyear retained Barclays to explore other options. Meanwhile, Genstar reportedly has raised a new fund with more than $5 billion.
Lightyear Capital’s chairman and founder Donald Marron is well aware that many private equity firms are awash in cash and looking to put capital to work. Given that Lightyear paid $400 million when it bought Advisor Group from AIG in 2016 and assumed only about $200 million in debt, the firm is under no pressure to sell.