Fresh off the announcement Thursday of his intention to purchase Cetera Financial Group Inc., Nicholas Schorsch compared his new broker-dealer network, when the deals are completed, to two of the biggest names in the retail-securities industry: the old Merrill Lynch and Raymond James Financial Inc.
“This combination give us a great platform with massive synergies and the ability build a clearing business in the future or the ability to negotiate a better clearing deal,” he said in an interview Thursday afternoon. “We are a newly minted investment bank with reach from Wall Street to Main Street.”
The cash deal is worth $1.15 billion, according a statement released by RCS Capital Corp., of which Mr. Schorsch is chairman.
The deal is expected to close later this year.
Mr. Schorsch has spent the past five years building a nontraded-REIT business and real estate investment banking company.
A newcomer to the independent-broker-dealer industry, he is pulling off the largest IBD acquisition since 2005. That is when the predecessor to LPL Financial Holdings Inc. sold a 60% stake to Hellman & Friedman and Texas Pacific Group for $1.5 billion.
Scroll through our interactive timeline of what led to Cetera's purchase by Nicholas Schorsch's RCS Capital.
Mr. Schorsch's broker-dealer holding company, RCS Capital Corp., said Thursday it agreed buy Cetera Financial Group, a leading network of four broker-dealers and 6,600 registered representatives and financial advisers, from Lightyear Capital. Cetera reps and advisers have about 2 million clients and $145 billion in assets under administration.
Mr. Schorsch is starting off 2014 where he left off last year, when he completed the acquisition of one broker-dealer holding company, First Allied Securities Inc., and announced two others, those of Investors Capital Holdings and Summit Financial Services Group Inc.
Once those three firms and the four Cetera broker-dealers are under his roof, he will have close to 9,000 reps and advisers producing about $1.65 billion in annual revenue, according to an investor presentation about the Cetera deal.
A Cetera acquisition would make Mr. Schorsch's broker-dealer holdings either the third- or fourth-largest network of independent reps and advisers.
The four Cetera Financial Group broker-dealers generated an estimated $1.14 billion in revenue last year. RCS Capital's purchase price translates into the acquirer paying about $1 dollar for each dollar of broker-dealer revenue, or 100% of trailing-12-month revenue.
That is an almost unheard-of sum in independent-broker-dealer mergers and acquisitions. In the past decade, buyers have paid in the range of 20% or 25% to 60% or 70% of a broker-dealer's trailing 12.
When asked about the price tag for Cetera Financial Group, Mr. Schorsch said that using a formula based on a percentage of trailing 12 wasn't the right way to look at such a deal.
“You can't value a business like this,” he said.
“Cetera has $145 billion of assets under management, which means we paid less than 1% of its AUM. We view this as a very reasonable purchase and a great diversifier,” Mr. Schorsch said, adding that Cetera chief executive Valerie Brown and the rest of her team will remain with the firm.
“What you want is assets under control,” said Lightyear's chairman, Donald Marron. “From that comes the revenues.”
Mr. Schorsch isn't afraid to ruffle feathers in the financial services industry. Over the past five years, he has turned the nontraded-REIT industry on its ear, speeding up the return of capital to investors to the delight of many investment advisers.
With dozens of independent broker-dealers as outlets, American Realty Capital, his real estate company, was the biggest seller of nontraded real estate investment trusts and nontraded business development companies over the past two years. ARC raised $2.8 billion in equity in 2012 and $8.3 billion last year, far outpacing the competition.
Last year, Mr. Schorsch made a pivot away from producing new nontraded REITs and began buying broker-dealers and other financial services companies. Finishing the pending acquisition of Cetera would complete his transition from a REIT czar to a broker-dealer leader.
Mr. Schorsch and RCS Capital's work to complete the Cetera acquisition is perhaps the only thing that could slow down the indefatigable dealmaker.
“I think I'm going to take a break for a little while and catch up,” he said.