After stunning the independent BD world with a series of lightning-quick acquisitions that made Cetera the second largest indie BD overnight, Bloomberg broke the news that their parent, RSC Capital, is said to be exploring a deal.
The article indicated that Lazard has been retained and the sale is expected to be around $700 million, far short of the $1.2 billion RSC paid for the 11 BDs RSC.
RSC was founded by famed non-traded REIT king Nicholas Schorsch, who hit hard times last October after the disclosure of accounting errors that eventually led to his departure. The stock price, though buoyed today, is at rock bottom with a market cap of about $100 million.
When Schorsch and company started buying up indie BDs, the industry scratched its head – why pay so much for a low margin business that carries high compliance risk liable for oversight of independent contractors? But Schorsch and company had rocked the staid non-traded REIT market, becoming the dominant player almost overnight, so maybe, just maybe, they saw something others didn’t. Perhaps they were buying distribution for their REITs, although that strategy would run counter to the nature of indie reps and would alienate partners competing with Cetera.
Now it seems that we will never know. It's likely that a private equity firm rather than another BD will buy Cetera, which is on track to generate $100 million in EBITDA. And it's unlikely that the new owner will be willing to invest a lot into a business where few see a great upside. More likely, a PE firm will focus on efficiencies and cost cutting to – you guessed it – sell to another entity or go public.
Plan advisors might see some change at Cetera, which had been building up its retirement services group and capabilities. The distractions of the sale will likely slow down current initiatives and put new ones on hold, with significant new hires unlikely. Will the aggressive DC specialty groups and other indie BDs with DC support services start targeting elite and even core Cetera plan advisors? Leaving a BD is like getting a divorce so, as with record keeper consolidation, Cetera advisors who were thinking of leaving anyway will likely accelerate their process – others can expect to be bombarded by calls from recruiters.
