No end in sight for Schorsch tear

After snapping up an alts manager and IDB, real estate maven on still on the hunt

Oct 6, 2013 @ 12:01 am

By Bruce Kelly

If there's anything to be said about Nicholas Schorsch's buying binge of financial services companies, it's this: He's not done yet.

Last week, Mr. Schorsch, who built his reputation by running a successful nontraded-REIT business, American Realty Capital, bought both an alternatives asset manager and an independent broker-dealer.

“I can't tell you we're done,” Mr. Schorsch said. “We'd love to look at insurance and other platform sponsors that are producing product.”

Although he would not name specific targets, Mr. Schorsch said RCS Capital Corp., an ARC subsidiary and a publicly traded company, remains in the hunt for new deals. Speculation has mounted that his primary targets would be independent broker-dealers, especially those owned by insurance companies with annual revenue in the range of $80 million to $200 million.

On Tuesday, RCS Capital agreed to acquire the Hatteras Funds, a boutique alternatives mutual fund company with $2 billion in assets.

The next day, RCS Capital agreed to buy Investors Capital Holdings Ltd., which controls an independent broker-dealer with 550 reps and advisers. That deal marks the second independent-broker-dealer acquisition of the year for Mr. Schorsch, who is chief executive of ARC and executive chairman of RCS Capital.

Still hungry

Industry observers were quick to note that Mr. Schorsch's appetite for buying independent broker-dealers, which sell nontraded real estate investment trusts, likely has not abated. Insurance companies have been actively selling their independent-broker-dealer units over the past several years, dumping the risk of retail brokerage in order to focus on the insurance business.

Hiring Larry Roth, the former CEO of Advisor Group, which is owned by insurance giant American International Group Inc., to head his broker-dealer operations, Realty Capital Securities LLC, is another indication of Mr. Schorsch's interest in building a broker-dealer network. Mr. Roth, who spent a good chunk of his career at an investment bank, is known as a deal maker.

While there is speculation that Mr. Schorsch wants to buy independent broker-dealers to broaden distribution for his nontraded REITs and other illiquid investments, that may not necessarily be the case, said Brad Fay, president of IBDSearch LLC, an industry recruiter.

“Assuming that [RCS Capital] is diversifying its business as stated, and given Larry Roth's experience running Advisor Group, I would speculate the next target would be an independent broker-dealer that caters to advisers weighted in insurance products,” Mr. Fay said. “One could be New England Securities [Corp.]. It's owned by MetLife, which has sold some of its broker-dealer assets in recent years. That would be a logical direction for diversification.”

MetLife Inc. officials could not be reached for comment.

RCS Capital will pay Hatteras $30 million in cash at the deal's close and another $10 million in deferred cash over the following three years, according to an investor presentation. There also will be earn-out payments in 2016 and 2018.

RCS Capital is paying a significant premium for Investors Capital. In a filing with the Securities and Exchange Commission, the firm said it expects to acquire Investors Capital for about $52.2 million, or $7.35 per share.

Many Investor Capital shareholders bought their stock from its founder, Ted Charles, in 2011 for $4.25, when he retired and sold his stake.

One immediate benefit to RCS Capital, which trades on the New York Stock Exchange under the symbol RCAP, will be savings from Investors Capital when it no longer has the expense of meeting regulatory guidelines as a public company, Mr. Schorsch said.

Speculation regarding the sale of Investors Capital started in early September, when in one day, trading volume spiked, topping 430,000 shares. The microcap stock typically trades closer to 13,000 shares per day.

As with other recent acquisitions, Mr. Schorsch is keeping the management team of Investors Capital in place. He said that Tim Murphy will remain as chief executive.

RCS Capital's first broker-dealer acquisition was in June when it bought First Allied Holdings Inc., which included First Allied Securities Inc. and The Legend Group.

Combined, First Allied and Investors Capital have more than 2,000 affiliated financial advisers and registered reps.

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