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.”

Part of the reason is that Lightyear acquired Advisor Group in 2016 from AIG at a bargain price of $400 million, of which no more than $200 million was likely Lightyear equity. Given that both Lightyear and Genstar deemed a $2 billion pricetag as reasonable for Advisor Group, Lightyear is sitting on a potentially huge capital gain.

While Lightyear doesn’t have to enter any transaction at all, a deal that returns 500 percent to 800 percent in a few years would be viewed a brilliant investment in the private equity world. In recent years, there have been fewer and fewer “seven-baggers” among private equity funds.

However, there is a growing belief on Wall Street that both the valuation Genstar paid for Cetera and the contemplated valuation for Advisor Group were extremely rich. Both Lightyear and LPL Financial Services had considered buying Cetera last summer for $1.4 billion or $1.5 billion. Both reportedly dropped out when told there weren’t in the ballpark and LPL could have easily financed the deal.

What isn’t clear is how much equity capital Genstar and Lightyear have in their existing funds to do future investments. This desire to conserve cash apparently was a major reason why the two parties discussed Genstar buying a majority stake in Advisor Group and letting Lightyear retain substantial minority stake in the combined entity.

There were other attractions of Advisor Group to Genstar. Many senior executives at Advisor Group held similar positions at Cetera, when it was owned by Lightyear from 2010 to 2014. That year it was acquired by real estate tycoon Nicholas Schorsch for $1.1 billion. Schorsch promptly went on an IBD acquisition binge that ended up with Cetera filing for bankruptcy only a little more than one year later.

Financial woes prevented Cetera from making needed technology investment during part of that period. Since emerging from bankruptcy, Cetera reportedly has made several intriguing investments in futuristic technology, but they have “yet to materialize,” according to one Cetera advisor.

While Advisor Group’s technology investments may be less ambitious, its platform is more efficient when it comes to “the buts and bolts needs” of advisor and their IBD supervisors.