Genstar Capital reportedly is in serious talks to acquire a majority interest in Advisor Group from Lightyear Capital, according to multiple investment banking sources. The discussions come less than four months after Genstar acquired Cetera Financial Group for $1.72 billion.
Sources said Genstar is contemplating paying Lightyear between $1.0 billion and $1.3 billion for more than 50 percent of Advisor Group. The transaction would convert the rest of Lightyear’s Advisor Group equity position into shares of Cetera’s parent holding company, making it the second biggest shareholder after Genstar in the holding company after the acquisition.
However, there still are several issues to be worked out and it was quite possible the parties could not agree to final terms. Both Genstar and Lightyear are private equity firms.
Jamie Price, CEO of Advisor Group, says the reports of serious talks with Genstar or other parties are inaccurate. While he acknowledges that many private equity firms are interested in the space, he says no serious talks are underway.
In a letter to employees, Price said, "We want to let you know that we are not in discussions with Genstar or Cetera. It is well known that private equity firms are interested in this industry. Given the success and momentum of our company, it is not surprising that this would lead to speculation and rumors. We continue to be focused on serving our advisors and their clients, and building on the great momentum we have experienced."
Were a deal to materialize, Genstar would probably combine some of these operations—bringing together two of the largest networks in the independent broker-dealer universe with nearly 16,000 reps and about $3.6 billion in revenues. The new network would rival LPL Financial Services in rep count and generate about $500 million less in revenues.
One attraction of Advisor Group would be their technology platform. Executives in the IBD universe said Advisor Group has invested consistently in technology for years while Cetera was hamstrung by financial woes. After it was acquired by real estate magnate Nicholas Schorsch in 2014, Cetera entered a pre-packaged bankruptcy briefly in 2016, constraining its capital spending capabilities.
One executive estimated that Genstar might be able to eliminate as much as $100 million in expenses if it merged operations. Advisor Group operates four broker-dealers while Cetera operates six.
The earnings multiple that Genstar and Lightyear are reportedly discussing is 10 times EBITDA (earnings before interest and taxes plus depreciation and amortization), almost exactly the same multiple that Cetera received. Advisor Group reportedly is projecting $200 million in EBITDA for 2019.
When Genstar paid $1.72 billion for Cetera, which generated about $171 million in EBITDA last year, the price raised eyebrows. Genstar reportedly outbidding both LPL and Lightyear by several hundred million.