Ladenburg, Cetera in the hunt for Securities America: Sources

Ladenburg Thalmann Financial Services Inc., recently a leading acquirer of independent broker-dealers, has emerged as one the final bidders for Securities America Inc., sources said. A broker with Securities America, who asked not to be named, said that executives with Triad Advisors Inc. - acquired by Ladenburg Thalmann in 2008 - indicated to him that they were not engaging with or transitioning Securities America reps to Triad at this point. When one firm halts recruiting from another, it is a common sign that the two firms are engaged in merger discussions. Meanwhile, Cetera Financial Group also may be in the hunt for Securities America, said Phillip Flakes, managing partner of StarPoint Consulting Group LLC, an industry recruiter. Multi-Financial Securities Corp., which is part of Cetera Financial, also has taken a hands-off approach to Securities America reps, he said. "We suspect Cetera has put a bid in," he said. "Multi-Financial said they wouldn't follow up with any [Securities America] advisers." Shawn Smith, principal of recruiting at Financial Advisor Placement Services said that Ladenburg Thalmann has been mentioned more than any other firm as a potential buyer of Securities America. "Also, a private-equity group may have some interest, similar to the one that purchased H.D. Vest," he said, although he did not know of a specific firm. Last month, Parthenon Capital Partners, a private-equity shop, said it was acquiring H.D. Vest Financial Services Inc., an independent broker-dealer that caters to accountants and tax professionals. It was the third private-equity acquisition of a large independent broker-dealer since 2005. Securities America has been on the block since April. Its parent company, Ameriprise Financial Inc., put it up for sale shortly after reaching terms on a $160 million settlement with investors who had sued the firm over failed private placements sold by the firm's brokers from 2003 to 2008. A spokesman for Ladenburg Thalmann, Jonathan Doorley, said the firm declined to comment. A spokeswoman for Securities America, Janine Wertheim, did not return phone calls by 1:45 EST. A spokeswoman for Cetera, Carol Graumann, did not comment. Meanwhile, Securities America CEO Jim Nagengast told reps in an e-mail this month that the firm was making progress in finding a buyer but could not name potential owners. "Many companies have expressed interest in acquiring our business, and we have narrowed the list to a very strong group," he wrote in the e-mail. A key issue is a retention package for the firm's 1,800 reps, Mr. Nagengast noted. "Over the coming weeks, potential buyers will be finalizing their proposals, which will include structure, valuation and approaches to financial advisor retention and/or equity participation," Mr. Nagengast wrote. A group of advisers is giving input on proposed retention packages and other parts of the process, he added. "The prospective buyers have already shared views on the value of our business model and the inclusion of meaningful financial adviser retention packages." Ladenburg has made no secret of its desire to buy broker-dealers, but hasn't bought an independent broker-dealer in three years. It bought Investacorp Inc. in 2007, and purchased Triad the following year. Combined, the firms had 1,030 affiliated reps and advisers. The B-D generated $41 million in revenue during the first quarter of this year. "We believe that we have the opportunity through acquisition and recruiting to significantly expand our market share in this segment over the next several years," Ladenburg Thalmann management wrote in May in its quarterly report. "Our goal remains as a public financial services company to marry the more-recurring and predictable revenue and cash flows of the independent broker-dealer business with Ladenburg's traditional investment banking, capital markets, institutional equity and related businesses," firm management wrote. Questions for brokers remain, however. First, how much of a retention bonus will a buyer pay to reps to keep them in their seats? Next, will brokers be dissatisfied with a potential buyer and look to move? Mr. Smith noted that Ladenburg Thalmann's use of National Financial Services LLC as its clearing firm should help calm reps. Most of the 1,800 brokers with Securities America use National Financial for clearing. Thus, if Ladenburg bought Securities America and left it as a standalone operation - as it did with Triad and Investacorp - brokers would escape the hassle of hours of paperwork to change customer accounts. "Most Securities America reps are with National Financial, so that could be a good marriage," he said. "If a broker-dealer buys Securities America and wants to repaper the reps immediately, the brokers don't want to do that," Mr. Smith said. "When Securities America was bought by Ameriprise, they were left alone. It was a change of ownership and they were allowed to do their business," he said.