RCS Capital (RCAP) said late Wednesday that it was buying VSR Group, which has some $12.3 billion in client assets and 264 affiliated advisors, for an undisclosed amount. The transaction is expected to close in late 2014 or early 2015, when VSR will become part of RCAP’s independent retail advice platform, Cetera Financial Group, which will include 9,200-plus advisors after the deal.
According to RCAP CEO William Kahane, the group is on a tear to catch up with LPL Financial (LPLA), which has 13,840 affiliated independent reps.
“Our strategic acquisitions in connection with our retail advice platform, including the recent announcement of VSR Group, Inc., place us squarely in the No. 2 position of U.S. independent retail advice networks measured by financial advisors,” Kahane said in a press release on Thursday, when RCAP released its second-quarter results. (Nicholas Schorsch is RCAP's executive chairman.)
RCAP’s Cetera Financial Group includes Cetera Advisors, Cetera Advisor Networks, Cetera Financial Institutions and Cetera Financial Specialists, First Allied Securities, The Legend Group, Investors Capital Corp., J.P. Turner & Co. and Summit Financial Services Group. The unit is led by Larry Roth, the former chief of the AIG Advisor Group.
“We view the addition of VSR as a great example of an accretive 'tuck-in' acquisition for our retail investment advice platform," said Roth, in a statement.
VSR’s advisors have average annual fees and commission of about $380,000 and have been in the industry for an average of nearly 11 years. About 40% of the group’s revenue comes from advisory fees, while 50% is based on commissions; roughly 60% of overall revenue is recurring, according to RCS.
(LPL Financial’s advisors had average yearly fees and commissions per rep of about $251,000 as of June 30; commissions per rep stand at roughly $155,000.)
“This transaction underscores our commitment to expanding the scope and depth of our financial services platform by acquiring top-tier independent broker-dealer platforms,” said RCAP President Michael Weil, in a press release. “We believe the acquisition is an excellent example of RCAP's ability to identify and execute strategic acquisitions of independent retail broker-dealers that should leverage the size and scale of the existing RCAP infrastructure in order to generate and further enhance earnings."
Q2 Results, Future Deals
RCAP said early Thursday that its pro forma revenues for the second quarter grew 22% from the first quarter to $825.7 million, while pro forma adjusted net income increased 12% quarter over quarter to $42.6 million, or $0.49 per share.
The retail-advice segment pro forma revenues grew 7% quarter over quarter to nearly $495 million. In addition, pro forma assets under administration in the retail-advice unit rose to $214.2 billion.
The firm has the financial resources it needs to make more acquisitions and future growth happen, Weil says.
“We are gaining traction and finding opportunities across all of our business lines,” he explained in a press release early Thursday. “With over $475 million in cash and cash equivalents on hand, a broad but integrated strategic plan, and tremendous long-term market opportunities, RCAP expects to continue to redefine traditional retail investment advice and realize further value in diversifying its revenues, while at the same time finding synergistic opportunities to grow revenues and reduce costs.”
In the second quarter, RCAP’s assets under administration for the retail-advice unit grew nearly $6 billion from the prior period to $214.2 billion.
(As of June 30, rival LPL Financial had some $465 billion in advisory and brokerage assets, about $167 billion of which are retail assets under custody and $78 billion of which are assets under custody for RIAs.)
“We believe we remain positioned for the continuing growth of our retail advice platform, having acquired what we believe to be high-performing, high-quality companies with experienced and proven management teams,” Weill added.” In addition, we expect our continued investment in technology and the use of sophisticated processes and procedures across the platform will provide clear advantages, including significant regulatory compliance benefits, as well as a positive impact to earnings.”
As for its wholesale distribution business, which includes the sale of nontraded real estate investment trusts and related products, RCAP says revenue for the second quarter was $325 million, up nearly 83% from the first quarter.
“We believe this business is constructed on a very solid foundation, which should support its target raise for 2014 of $12 billion with over 30 diverse investment programs either currently in the market or in registration being distributed through a network of over 70,000 financial advisors,” the company explained in its earnings release.
Check out RCS, Schorsch Jump Into Crowdfunding on ThinkAdvisor.