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Independent B-Ds eager to see more M&A activity as Schorsch takes breather

Large shareholder of National Holdings urges firm to take advantage of 'window of opportunity'

Mar 28, 2014 @ 2:36 pm

By Bruce Kelly

+ Zoom

Even though nontraded-REIT czar Nicholas Schorsch appears to have taken a breather in his march to buy up independent broker-dealers, that doesn't mean that others in the industry aren't eager to see more deals get done.

Indeed, one of the largest shareholders of publicly traded National Holdings Corp. this month sent a letter to chief executive Mark Klein, urging him to seize the moment for potential mergers and acquisitions or otherwise maximize value for the company's shareholders.

Mr. Schorsch, through his publicly traded broker-dealer RCS Capital Corp., of late has been on an acquisition binge of independent firms, announcing five such deals since last June. One of those deals has closed, while others are pending.

In total, they involve close to 9,000 reps and advisers.

On consecutive days in January, Mr. Schorsch said that he was buying Cetera Financial Group for $1.15 billion and J.P Turner & Co. for $27 million. He has been quiet since then, with the market anticipating another acquisition.

All that activity has caught the attention of Iroquois Capital Management, which controls 5.9% of the outstanding common stock of National Holdings.

The company owns two independent broker-dealers, National Securities Corp. and vFinance Investments Inc. Combined, those two firms have a total of about 1,100 representatives and produced $127.6 million in revenue for the fiscal year ended Sept. 30.

“We note there has been an unprecedented level of M&A-related activity involving independent broker-dealers over the past months,” according to the letter, which was part of a proxy filing on March 6 and signed by Joshua Silverman, managing member of Iroquois Capital. “This M&A activity has created a window of opportunity to the company to realize superior value for shareholders through a negotiated transaction.”

Mr. Silverman added that Iroquois Capital had “serious concerns” about National Holdings' “lack of transparency” in communicating with shareholders the potential for a merger or its plan to increase its value if it decides to go it alone.

“National Holdings maintains an 11-member, independent majority board and will continue to review all serious proposals presented to the company for consideration regarding potential M&A or other transactions that enhance value for all shareholders,” according to a statement by its co-chairman Robert Fagenson. “Given the nature of the proxy filing, the company and its board of directors does not have further comment at this time.”

National Holdings is an attractive candidate for a merger, one industry recruiter said.

“Although I have no direct knowledge of an imminent deal involving National Holdings, I don't see why the company wouldn't be a target for the M&A activity we've been seeing based purely on its results,” said Brad Fay, president of IBDSearch.

For the fiscal first quarter ended Dec. 31, the company had nearly $42 million in revenue, a 58% increase from a year earlier, he noted.

“They've maintained profitability for several quarters now,” Mr. Fay said. “It looks like they've turned things around.”

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