Genstar Capital, a private equity firm with multiple investments in the advisory business, has agreed to acquire a majority ownership in Cetera Financial Group, one of the nation’s largest independent broker-dealer networks. The transaction is seen as a major victory of Cetera’s management and reps who were hoping to maintain the IBD network’s independence after it announced in February that it was retaining Goldman Sachs to review its capital structure and strategic options.
No purchase price was disclosed but investment banking sources said that Cetera was able to obtain more than the $1.4 billion purchase price it was seeking. Last week two big possible strategic buyers with deep pockets, LPL Financial Services and Lightyear Capital, notified Goldman Sachs that they were withdrawing from the bidding. While Genstar isn't a strategic buyer with IBD operations like LPL and Lightyear, its investments in concerns like AssetMark and Mercer Advisors make it a major player in the industry.
After emerging from bankruptcy in 2016, a substantial portion of Cetera’s debt was structured in a fashion under which the interest rates were scheduled to rise sharply after the first few years, this source added. Consequently, the management team led by CEO Robert Moore felt compelled to restructure the debt before the higher rates kicked in.
“This outcome affirms our vision for the future of the financial advice profession and creates a powerful partnership to help make this vision a reality for the financial advisors and institutions we support,” Moore said.
Without delving into specifics about Cetera's former or future capital structures, Moore said that Genstar was investing "significant, sustainable capital" in the business. The former capital structure when it emerged from bankruptcy was "designed to bridge the company to the point where it is today." Going forward, "I feel very good about the cost of funding."
After Cetera exited bankruptcy, Moore consolidated the network down from 11 B-Ds to 6 entities. He said the parent company will retain its multi-affiliation structure, traditonal and specialty. The latter group includes Cetera Financial Institutions, which serves banks and credit unions, and Cetera Financial Specialists, which focuses on accountants.
Cetera's network has about 7,800 reps and generates almost $1.8 billion in annual revenues.
Third-party recruiters saw the transaction as a favorable development for the IBD space. Had Cetera been acquired by its former owner, Lightyear Capital, or LPL Financial Services, it would have narrowed the IBD-affiliation options for many independent reps.
Those who were “convinced that Cetera would no long exist once the company’s strategic review was concluded were severely underestimating Robert Moore and the rest of his leadership team,” BridgeMark Strategies CEO Jeff Nash said. “Increased long-term competition among financially healthy and stable large firms is an excellent outcome for the entire advisor community.”
Nash added that it was also a positive development for Cetera reps since it removes a major element of uncertainty about the IBD's future.