Advisor Group, a division of Lightyear Capital, announced last week that it had purchased Signator Investors Inc. from John Hancock Financial Services for $50 billion in assets. The purchase of Signator, a retail brokerage valued in trade media at approximately $160 million, brings into the AdvisorGroup’s Royal Alliance fold 1,800 advisors in a deal that caused barely a ripple in the industry pond as it was fairly expected to occur.
The transaction, however, shouldn’t go without note as it raises the question of what value Signator brings to Royal Alliance and how the purchase of Signator impacts Lightyear’s quest as a purchaser of Cetera.
One of the primary issues brought to the forefront through Lightyear’s purchase of Signator is the doubling of Royal Alliance’s advisor headcount and now the ability to maintain service levels for their existing and new advisors thereby enabling those advisors to meet the needs of the firm’s clients – a consideration I am already hearing whispers of concern over as I speak to my sources on the street.
It can be assumed that Signator will be a straight-forward acquisition for Lightyear, with the advisors and assets being merged directly into the Royal Alliance division of AdvisorGroup. While simple to execute, the influx of Signator advisors will double the headcount of the firm and sow a tough road for the company for the foreseeable future as they will need to adjust processes and strategies to accommodate the increase in both company size and client account responsibilities.
Which leads us to the next obvious question of a possible Lightyear acquisition of Cetera Financial Group. While the integration of Signator into Royal Alliance/AdvisorGroup may serve as a distraction during the company’s pursuit of Cetera, it is certainly not a roadblock that prevents Lightyear from becoming Cetera’s purchaser. Several reports indicate that this news will hit the street sometime over the next two weeks, and possibly as early as this week.
The consideration of whether Lightyear is financially able to purchase Cetera after purchasing Signator is a non-issue as the value of Signator was not remotely perceived in the industry as requiring enough capital to take Lightyear out of the Cetera game.
Additionally, the purchase of Cetera by Lightyear will not involve any type of firm consolidation, such as the one outlined here for Signator. A Lightyear acquisition of Cetera would most likely follow an “If it ain’t broke, don’t fix it” approach, under which Lightyear would simply take over ownership of Cetera Financial Group. Given that Cetera has already gone through several large changes and consolidations of its underlying firms – for example transitioning VSR and JP Turner into Summit Brokerage as well as merging Girard Securities into Cetera Networks – this acquisition strategy is not only feasible, it makes the most sense while simultaneously allowing for the continuation of the existing Cetera management team to achieve the long-term goals they have worked so hard to achieve, among them bringing Cetera back from the bankruptcy woes of it’s former parent RCAP.
Also, when evaluating what Lightyear’s endgame vision might be for acquiring Cetera, it’s important to focus in on Cetera’s debt as an asset in the acquisition process. As my previous article on May 22nd in Financial Planning outlined in detail, a refinancing of Cetera debt will lead to $20-$30mm in annual debt savings according to industry experts and comments made by the President Robert Moore. Based on this information, should Lightyear be the ultimate buyer of this gem of a firm, I do see the rationale, down the road, under which there could be some significant consolidation, cost saving, and better pricing due to scale, by merging Advisor Group firms into Cetera Financial Group firms.
Finally, the ultimate value of Cetera to Lightyear can be seen in Cetera’s existing technology platform. Cetera has spent an estimated $130mm on “MyAdviceArchitect”, a technology platform system coveted by nearly every purchaser courting Cetera at this time. By purchasing Cetera, Lightyear could eliminate the expense and necessity to conduct a technology upgrade for the AdvisorGroup firms as it would not make sense for a sister firm to do so when they could just tap into an existing technology platform resource such as the one developed by Cetera.
No matter who the ultimate purchaser of Cetera will be, whether Lightyear or some other firm, it will be interesting to watch the firms in the game keep their poker faces on as they execute their desired acquisition strategy. Stay tuned as there is certainly more to come.
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