Marron scores big on Cetera deal

After having no plans to sell, the Lightyear Capital executive found an offer too good to pass up

Jan 16, 2014 @ 10:10 am

By Mason Braswell

Don Marron
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Don Marron (Bloomberg News)

Donald Marron is batting a thousand.

The Lightyear Capital and former PaineWebber Group Inc. chief executive is two-for-two after handing over the keys in his second deal to sell a major broker-dealer. In a deal announced Thursday, Nicholas Schorsch and his broker-dealer holding company, RCS Capital Corp., agreed to buy Cetera Financial Group Inc. from Lightyear Capital for $1.15 billion.

(Don't miss: Schorsch: RCS Capital is the next Merrill or Raymond James.)

Mr. Marron, who was at the helm when PaineWebber sold itself to UBS in 2000 for $11 billion, has owned Cetera, a leading network of four broker-dealers and 6,600 registered representatives and financial advisers, for just under four years. Since he bought the firm from ING Groep NV in 2010, Cetera's annual gross revenue has almost doubled to more than $1 billion, from $653 million.

Mr. Marron would not disclose how much his firm originally paid for Cetera, but the $1.15 billion price tag represents almost a dollar-for-dollar payout on revenue. From the level of revenue when he bought it, the Schorsch offer represents nearly a doubling of his original investment, not including the capital invested in the multiple acquisitions and upgrades made to Cetera's platform.

Last July, Cetera's chief executive, Valerie Brown, told InvestmentNews that there was “no plan for a liquidity event.” But not long afterward, Mr. Schorsch, who has been snapping up independent broker-dealers since late last year, came knocking with a pre-emptive bid.

“It's a good deal for us,” Mr. Marron said in an interview. “We were not planning to do something at this time.”

The hefty price tag represents one of the largest deals in the independent-broker-dealer space since around 2005 when LPL Financial sold a 60% stake in itself to private equity managers Texas Pacific Group (now TPG Capital) and Hellman & Friedman for roughly $1.5 billion.

While steep, the price is in the range of where brokerage firms are trading as buoyant securities markets boost results, said Dan Seivert, chief executive and founder of Echelon Partners. Among publicly traded companies, LPL is trading at 1.4 times sales, he said. Raymond James Financial Inc. is trading at 1.6 times.

“They want to sell for a price they would have a hard time beating if they stayed in the business for another year,” Mr. Seivert said.

Alois Pirker, a research director at Aite Group, added that as the economy improves and other firms reach record highs, more deals could be struck in the space.

“I think we're going to see more of this,” Mr. Pirker said. “It's a target-rich area.”

As for Mr. Marron, he plans to continue the momentum at Lightyear. His next big target in the money management space is RidgeWorth Capital Management Inc., although that deal has yet to close, he said.

Last month, RidgeWorth said that in partnership with Lightyear, employees of RidgeWorth agreed to acquire the firm from SunTrust Banks Inc. for up to $265 million. That deal is expected to close in the second quarter.

“We think it's a great space,” Mr. Marron said. “This segment of the business is very attractive and is growing faster than the full-service business.”

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