A potential sale of Cetera Financial Group could be boon for its private equity owners, but turn out to be another distraction for its 8,000 advisers, who saw the company emerge from bankruptcy less than two years ago.
On Friday,
Bloomberg News reported that Cetera was exploring a sale that could fetch its private equity owners as much as $1.5 billion.
On Monday,
the company said it launched an internal review with the objective of optimizing its capital structure, lowering costs and maximizing continued investments.
Cetera also said it hired Goldman Sachs & Co. for the review.
"It is a distraction," said one Cetera adviser, who asked not to be named. "If management wants to lower debt costs, or replace debt with equity and have a capital structure to meet its goals and objective, that's positive. But it remains to be seen. I'd like to think they have learned from the past."
Cetera is planning a conference call on Tuesday afternoon at 4:30 ET with its advisers to discuss the review of its capital structure, prompted at least in part, by the Bloomberg article, according to an email sent to advisers Friday evening.
"The acceleration of our performance relative to our initial plan has given us the opportunity to optimize this structure," according to the email, which was read to an
InvestmentNews reporter by the unnamed Cetera rep. "In the spirit of our commitment to be highly transparent, we invite you to join us on Tuesday afternoon for an all adviser call to provide more context and clarity."
"We do not anticipate any disruption to our advisers and institutions with this capital structure review," said Joseph Kuo, a Cetera spokesman, in an email to
InvestmentNews. "Cetera has just initiated a capital structure review. Our goals are to lower our cost of capital and increase our continued investments in the business. Beyond this, it would be premature to speculate on what outcomes will ultimately result from this process."
Two years ago, Cetera's parent company at the time, RCS Capital Corp., filed a prearranged Chapter 11 bankruptcy reorganization. Its sttockholders were wiped out, and the firm was left heavily in debt.
The IBD network is now owned by RCS Capital's former first and second lien holders, which includes some of the most prominent names in private-equity finance and money management, including Fortress Investment Group, Carlyle Investment Management and Eaton Vance..
A price tag of $1.5 billion for Cetera would be exceedingly rich, observers said. Comprised of six broker-dealers,
Cetera generated more than $1.6 billion in total revenue in 2016, according to
InvestmentNews data.
If the Bloomberg article were to prove accurate, the price tag would be the equivalent of 93% of Cetera's total revenues. That's a multiple for broker-dealers not seen since Nicholas Schorsch and the holding company he controlled, RCS Capital Corp. paid premiums in his buying binge of IBDs in 2013 and 2014.
"The multiple [for Cetera Financial Group today] would likely be close to 40% of revenue range," said Jon Henschen, an industry recruiter. "We've come back down to earth in valuations compared to the Schorsch numbers done in the past."
Robert Moore, the CEO of Cetera, indicated in an interview with
InvestmentNews in November that Cetera didn't have plans to sell the company.
"There is an abundance of investors who wish to get involved with us, but we are not looking for a private equity firm to come buy us," Mr. Moore said at the time.
The six firms that make up the independent broker-dealer network are: Cetera Advisor Networks, Cetera Advisors, Cetera Financial Institutions, Cetera Financial Specialists, First Allied Securities and Summit Financial Services Group.
