It’s been more than three months since Regions Financial said it was putting broker-dealer Morgan Keegan on the block, and the lack of news regarding a potential sale, experts say, is troubling.
“Every day that goes by, every day, makes the firm and its advisors more vulnerable for a number of reasons,” said Rick Peterson, a Houston-based recruiter with Peterson & Associates, in an interview with AdvisorOne.
“First, brokers are leaving in drips and drabs not droves, and no one is going in. And this means revenue at the broker-dealer is declining, making it more difficult for a potential purchaser to justify buying Morgan Keegan,” explained Peterson.
Regions announced June 22 that, after resolving some disputes with regulators and agreeing to pay $210 million, it would explore all options with respect to the future of the Memphis, Tenn.-based broker-dealer. It retained Goldman Sachs to consider “potential strategic alternatives.”
“When a firm is being shopped over and over, in general, it begs the questions, ‘Why isn’t somebody already jumping on it? What’s the hidden problem? Is it poor pricing?’ ” the recruiter said. “Goldman Sachs must be scratching their heads.”
Morgan Keegan includes 1,200 financial advisors working in 16 states and Washington, D.C., with some $82 billion in total assets under management or average AUM of $68 million per FA.
“In regards to Morgan Keegan … we really have nothing new to report today, except to reiterate that we continue to explore strategic alternatives, which we believe is in the best long-term interest of both Morgan Keegan and Regions Financial,” Regions President and CEO O.B. Grayson Hall, said at a conference on Sept. 12. “The Morgan Keegan franchise continues to perform very well, and we remain confident in our efforts to resolve our strategic direction with this business promptly.”
It took Ameriprise Financial nearly four months to sell its troubled independent broker-dealer Securities America earlier this year; Ameriprise announced plans to make such a move on April 25 and said it had reached a deal regarding the sale to Ladenburg Thalmann on Aug. 17.
“[Regions and Morgan Keegan] haven’t missed the window yet,” said consultant Chip Roame, head of Tiburon Strategic Advisors, in an interview. “But it does seem to be dragging on.”
The firm is generally too small to be considered an acquisition target for private-equity firms like BlackRock, Roame says, “It’s a slow process for a few buyers.”
Likely bidders include Stifel Nicholaus, R.W. Baird and Wells Fargo, according to Roame. Last week, Raymond James executives hinted that such an acquisition did not make sense for the firm, despite the firm's common roots with Morgan Keegan in the Southeast. Stifel and Wells Fargo said Friday that they does not comment on such matters.
While market volatility makes the M&A climate more difficult, “other deals like [the sale] of HD Vest and First Allied have gotten done,” Roame points out.
“Morgan Keegan has to hold its advisors in their seats, because each advisor that leaves hurts them,” said recruiter Ron Edde of Armstrong Financial Group, in an interview.
A team of two advisors with about $1.5 million in yearly fees and commission recently moved from Morgan Keegan to Wells Fargo’s independent channel, Edde says. “And another team with about $1.1 million is going to Morgan Stanley.”
As more deals like this happen, Edde explains, “It makes [potential] buyers more anxious.”
“The broker-headcount change has been negligible since late June,” said Kathy Ridley, a spokesperson for Morgan Keegan and Regions. “Since the announcement of the strategic review came out, we went from 1,217 advisors to 1,212 as of last week.”
Recruiters like Edde say that some advisors may want to stay and see who buys the firm. The FAs have heard rumors that retention deals for them could represent about 50% of their yearly fees and commissions.
“The top Securities America reps got 15%. Why would Morgan Keegan advisors get 50%? It doesn’t make economic sense,” said Edde.
As the clock keeps ticking, “The [potential retention] deals for advisors will not get better, so they should compare their situation with others and see if there are better opportunities to explore,” Edde said. “I am working with about two dozen [Morgan Keegan] advisors right now.
According to Edde, the advisors were told about 10 days ago that they could expect some news on the sale by the end of October.
For his part, Peterson remains highly bullish on a deal. “I suspect that the highest price potential has been reached. Morgan Keegan is now going lower, because the value of the franchise has dropped and will continue to do so until a deal is done.”
This situation appears to be quite serious, he adds. “They seem to have run out of potential buyers and could even be going back to those [bidders in the] first round, saying ‘Give us another bid.' ”