Is an acquisition of National Holdings Corp. imminent?

Independent B-D microcap looks like a bargain, recruiter says

Dec 3, 2013 @ 2:21 pm

By Bruce Kelly

Yet another publicly traded independent broker-dealer has recently seen an enormous increase in the trading of its shares and heady gains for the year in its stock price, leading some industry observers to wonder if another acquisition is imminent.

National Holdings Corp. (NHLD), the parent of two independent broker-dealers, saw more than 3 million shares traded Nov. 27, at a range of 48 cents a share to 60 cents a share. It ended the day at 54 cents a share.

The average three-month daily volume of the microcap company's stock is 29,277 shares, according to Yahoo! Finance.

“We're seeing independent broker-dealer [mergers and acquisitions] pick up,” said Bradley Fay, president of IBD Search, a recruiting firm.

He added that he has no direct knowledge of an imminent deal involving National Holdings, which controls the broker-dealers National Securities Corp. and vFinance Investments Inc.

Combined, the two firms have 825 registered representatives and financial advisers.

The stock price of National Holdings had risen 228% year-to-date through Tuesday afternoon, when it was trading at 53 cents a share.

Over the past few months, two other microcap parent companies of independent broker-dealers have seen significant increases in trading volume before they were acquired by RCS Capital Corp., the broker-dealer that acts as a wholesaler for nontraded real estate investment trusts controlled by Nicholas Schorsch.

He has been on an acquisition tear this year. Last month, Mr. Schorsch agreed to acquire independent broker-dealer holding company Summit Financial Services Group Inc. for $49 million in cash and stock. The day before that deal was announced, 97,600 shares of Summit Financial traded, more than four times the average daily volume over the past three months.

On Sept. 5, Investors Capital Holdings saw trading jump to 434,000 shares. Until then, typical trading volume for Investors Capital had been 13,000 shares per day.

Mr. Schorsch agreed in October to acquire Investors Capital.

Tony DeFazio, a spokesman for RCS Capital, said the company had no comment.

Mark Goldwasser, president and vice chairman of National Holdings, didn't return calls seeking comment.

The two firms are familiar with the other's operations. National Securities in June was one of the underwriters for RCS Capital Corp.'s initial public offering.

National Holdings looks like a bargain, in terms of the valuations placed on recent broker-dealer acquisitions, Mr. Fay said.

“The last few IBD acquisitions, the valuation range has been between 0.63 and 0.67 times revenue for profitable firms. National Holdings has been averaging a little over $30 million per quarter in revenue and has been profitable over the past nine months ending June 30, with a market cap of less than $65 million,” Mr. Fay said.

“Some may think the company has turned around its performance and is undervalued. Adding credibility to this story, over the past year, Robert Fagenson, co-chairman of the holding company, has become a large shareholder,” he said.

“He has an excellent reputation and one time owned one of the largest specialist firms, Fagenson & Co., and is former governor and board member of the NYSE,” Mr. Fay said.

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