Both LPL Financial and Lightyear Capital reportedly have given formal notice that they are withdrawing from the bidding process to acquire Cetera Financial Group, according to several investment bankers. However, at least one source indicated that Cetera's investment banker, Goldman Sachs & Co., was planning to reach a tentative agreement with another buyer, probably a private equity firm, by July 31.
With the leading strategic buyer candidates expected to exit the bidding process, a financial buyer is likely to emerge as the new owner. That should leave Cetera's existing operations and management in place.
Cetera did not confirm or deny the reports but said it was pleased with the progress it was making in its exploration of various business options. “As we’ve stated from the outset, we will be very selective in choosing any partner as part of our long-term capital enhancement plans, and we remain focused on driving an outcome that is designed to deliver sustained value for all our key stakeholders, including the advisors and institutions we support. Beyond this, we have no further public comments at this time on the process," said Cetera spokesman Joseph Kuo.
While LPL, the nation's largest independent broker-dealer, was not viewed as a likely acquirer of Cetera in recent months, Lightyear was seen by some as the leading candidate to buy the firm. Lightyear CEO Don Marron had owned the firm from 2010 to 2014, when he sold it to Realty Capital's Nick Schorsch for $1.1 billion. Consequently, he and his team were very familiar with its operations.
After selling Cetera, Lightyear acquired the Advisor Group of four IBDs from AIG in 2016. Last month it acquired Signator from John Hancock and merged that firm with its Royal Alliance unit. The transaction added about 2,000 reps to Advisor Group's network, bringing its total sales force to 8,000 reps.
Both firms reportedly thought the $1.4 billion price tag that Goldman was asking for Cetera was too high. As potential strategic buyers, LPL and Lightyear had theoretical advantages, given that both have vast B-D operations that could provide significant cost savings if they were to merge these business units with Cetera's.
However, LPL is still experiencing digestion problems, service issues and capacity constraints following its 2017 acquisition of four IBDs from Jackson National's National Planning Holdings network. Had it proceeded with another acquisition, the move would have antagonized many within its own 16,000-rep network who have stuck with the firm despite what third-party headhunters describe as serious problems regarding service.
Lightyear's exit was far more surprising. Indeed, one investment banker wondered if Lightyear might be feigning a withdrawal from the bidding process in the hope that Goldman would drop the price for Cetera.
Such a tactic would be highly unusual and risky, this banker said. He added that Lightyear is extremely skilled at financial engineering and probably concluded the numbers simply wouldn't work. Moreover, both Advisor Group and LPL are seen as having a higher quality network of reps when measured by product mix and revenue per rep.