The Cetera Financial Group sale process has entered a second round of bidding, with all bids for the company due by early July. A likely conclusion to the sale process is expected by no later than the end of August, reported multiple sources across the investment banking community. Several investment bankers stated that Cetera is seeking to get at least $1.5 billion in any sale of the company.
Don Marron’s Lightyear Capital is currently viewed by multiple M&A bankers as being in the lead among the possible buyers of the 8,000 rep B-D.
Other potential bidders reportedly in the auction process include Reverence, Ameriprise and Lovell Minnick, the private equity firm that previously owned First Allied Securities, one of the firms within the Cetera network, before selling the business to RCAP, in late 2013. First Allied subsequently became part of Cetera when RCAP purchased the company early the following year from its once and potential future owner, Lightyear Capital. Lovell Minnick turned a robust profit on First Allied and consequently is thought to be willing to pony up a significant premium.
Financial realities make it likely that some transaction is likely. That is because Cetera's unique situation. It emerged from bankruptcy in 2016 triggered by its former parent, RCAP, and has post-bankruptcy debt that is scheduled to become increasingly expensive in the near future. A simple debt restructuring is always a possibility, but the favorable environment for independent broker-dealers (IBDs) has piqued interest among institutional investors.
A Cetera spokesman, Joseph Kuo, said the firm was "pleased with the progress it was making." The IBD network "will be very selective in choosing any partner as part of its long-term capital enhancement plans, and we remain focused on driving an outcome that delivers sustained value for all our key stakeholders."
Given Lightyear’s current ownership of Advisor Group, it is perceived as having structural financial advantages to a private equity consortium. Executives in the IBD world think Advisor Group could eliminate nearly $100 million in expenses by merging the two firms’ operations.
Another advantage Lightyear has is that it owned Cetera from 2010 to 2014. Lightyear founder Marron and Advisor Group executive chairman Valerie Brown, who was CEO of Cetera during that period, are intimately familiar with Cetera’s operations. Cetera’s network of six broker-dealers generating $1.76 billion in revenues is bigger than Advisor Group’s four B-Ds with about $1.4 billion in revenues.
Combining the two networks would create the industry’s third-largest IBD behind LPL and Ameriprise. It would have $3.1 billion in revenues and 14,000 reps. An IBD of that scale could easily do an IPO to refinance much the debt it would assume to do an acquisition. LPL was able to raise $470 million when it went public in 2010.