DEAL WATCH: BROKER SEEKS PARTNER, HOPES DEAL WILL PLAY WELL IN PEORIA AMERICAN INVESTMENT SERVICES SAYS IT’S IN TALKS WITH MANY, BUT WON’T RUSH INTO A MERGER

American Investment Services Inc. joins the growing list of midsized independent broker-dealers looking for an outside partner to provide a capital boost.

The firm confirms it is shopping for a strategic partner or a buyer and is in talks with several, although a deal is not imminent. With about 220 reps stationed in 124 branches nationwide, American Investment Services generated about $17.5 million in revenues last year.

The closely-held East Peoria, Ill.-based brokerage has grown rapidly in recent years, but like many firms its size, the escalating costs of servicing representatives and installing the latest technology are starting to pinch.

“Technology is part of it,” says James Burgauer, chief executive officer of AISCO Holdings Ltd., the parent of American Investment Services. “In order to continue our exponential growth rate, we need to have access to increased products and services and a larger capital base.”

time to look for help

He says the best partners would be other broker-dealers catering to a broad range of clients, clearing firms that could benefit from increased order flow, and those old standbys, banks and insurers.

Brokerages with similar types of reps include Boca Raton, Fla.-based Corporate Securities Group Inc. and St. Petersburg, Fla.-based Robert Thomas Securities Inc., says Larry Papike of Cross Search, a San Diego-based firm specializing in placing brokers with firms and matching broker-dealer buyers and sellers. Both those firms, like American Investment Services, focus primarily on selling individual securities, rather than mutual funds.

“They would make sense, I guess,” Mr. Burgauer allows, although he wouldn’t confirm whether they were among the firms he’s approached.

Mr. Burgauer, 40, and his partner, A. Philip Chang, now president of the brokerage, started the business 10 years ago. Together, they hold 86% of the firm’s voting stock and 70% of the total stock.

The company’s growth has accelerated in the last three years, va
ulting to $17.5 million in 1997 revenues from $4.3 million in 1994.

Last year, the firm picked up about 40 reps when it bought the assets of now-defunct North Dakota brokerage Financial Advantage Brokerage Services.

American Investment Services is reaching a size at which most brokerages begin looking for outside help, Mr. Papike says. They start having to compete with larger and better-financed competitors that can offer their representatives more services.

“Pretty soon, the only way they can compete is on payout,” the percentage of commissions a rep gets to keep, he says, and that eats into margins.

At the 20% to 30% of annual revenues that independent broker-dealers typically are fetching, American Investment Services might attract bids between $3.5 million and $5.25 million.

Mr. Burgauer describes his reps generally as “disenfranchised wirehouse brokers” who come to his firm for the greater freedom and higher payout. Payouts at AISCO typically are in the range of 80% to 90%, although some are in the 70% to 75% range.

next in line?

The product breakdown at American Investment Services, by sales, is 40% stocks, 24% mutual funds, 11% options, 10% limited partnerships, 10% insurance and 5% bonds.

The firm clears trades primarily through St. Peterburg, Fla.-based Raymond James & Associates and St. Louis-based RPR Correspondent Services.

If American Investment Services is sold, it will be another in a long line of independent broker-dealers that have been acquired recently.

Two of the largest, New York-based Nathan & Lewis Securities Inc. and Omaha, Neb.-based Securities America Inc., last month joined that group. New England Life Insurance Co. is buying Nathan & Lewis, which boasts nearly 900 reps. American Express Financial Advisors Inc. is purchasing Securities America, with about 1,200 reps.

Los Angeles-based SunAmerica Inc. has been the most aggressive acquirer, amassing nearly 10,000 reps largely by buying independent brokerages like

Atlanta-based Financial Service
s Corp. and New York-based Royal Alliance Associates Inc.