Lightyear Capital has retained investment bank Barclays to explore the possible sale of its Advisor Group network of independent broker-dealers. The move comes after talks between Lightyear and Genstar, which acquired Cetera Financial Group in 2018 for $1.75 billion, about merging Advisor Group and Cetera, fell through.
Lightyear’s decision to retain Barclays was first reported on PE Hub, a website covering the private equity industry. The retention of Barclays was confirmed by several investment banking sources. Discussions between Lightyear and Genstar were initially reported by Financial Advisor.
Executives at Advisor Group issued a brief statement and declined to elaborate. “We are not going to respond to continued speculation," a spokesperson said. "Barclays was hired for our debt offering in August and continues to be our advisor.”
Lightyear and Genstar had negotiated a transaction that would combine Cetera and Advisor Group in what was seen as a merger of equals. The deal reportedly would have valued Advisor Group at $2.0 billion to $2.3 billion, or ten times EBITDA (earnings before interest and taxes plus depreciation and amortization.)
That price was based on the same multiple that Genstar paid for Cetera. Sources said the way the transaction would have been structured was that Lightyear would have sold a majority interest in Advisor Group to Genstar and retained equity, making it a minority owner of the new merged firm.
A Cetera-Advisor Group combination would have created a giant IBD network with more than 15,000 reps and more than $3 billion in revenues. Only LPL Financial and Ameriprise would have exceeded it in size. The ultimate exit strategy for a firm of that scale probably would have been an IPO—the combined operation would have been significantly larger than LPL Financial was at the time of its IPO in 2010.
While two investment bankers said both Genstar and Lightyear were comfortable with the transaction, Genstar learned that it would experience difficulty raising the funds to complete a deal. The $1.75 billion price Genstar paid for Cetera was seen as “very pricey,” according to a private placement banker who requested anonymity. Genstar was able to obtain financing for Cetera in part because it invested $700 million in equity, more than many private equity firms typically shell out.
After learning that the acquisition of Advisor Group would face financing headwinds, Genstar reportedly asked Lightyear if it was willing to renegotiate the transaction. Among the options under consideration were Lightyear accepting a larger minority stake in the combined entity, a reduced valuation for Advisor Group or a restructuring of the payout terms that would give Genstar a longer runway in which to pay back Lightyear.
Lightyear reportedly declined these options and instead retained Barclays. “When you’ve had a potential deal like this fall through, it’s a natural time to test the waters to get a sense of what the market feels the business’s true valuation is,” an investment banker said.
Among the two private equity firms, Lightyear probably is in a stronger position at the present time. One investment banker argued that “Genstar needs Advisor Group much more Lightyear needs Cetera.”