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RCAP (Finally) Selling Troubled Wholesale Unit

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RCS Capital (RCAP), which just reported a 65% year-over-year drop in its second-quarter equity sales to $1.3 billion, said Thursday that it is selling this business to Apollo Global Management for $25 million in cash. Its advisor-focused business, Cetera Financial Group, plans to work with Apollo in order to sell alternative products through its 9,500 independent advisors.

Plus, RCS Capital says Apollo and affiliates of Luxor Capital Group plan to invest $37.5 million ($25 million from Apollo and $12.5 million from Luxor) in the company through newly issued preferred stock.  

Last year, American Realty Capital Properties (ARCP) reported $23 million of accounting errors, and at the time, the founder of ARCP and RCAP – Nicholas Schorsch – was executive chairman of both entities. RCAP distributes ARCP products, which have incuded nontraded REITs. This, in part, prompted RCAP to renege on its planned purchase of ARCP’s Cole Capital business for $700 million, and ARCP then moved to sue its investment partner. (ARCP rebranded itself as VEREIT last week (VER).

In the first quarter, RCS Capital’s equity sales dropped 54% from a year ago to $1.1 billion. On a pre-adjusted basis, the company reported a net loss of -$13.5 million, or -0.14 a share, vs. a net loss of -$7.4 million, or -0.09 a share in the year-ago period. Total revenue was down 8% year over year to $625.6 million in the period ending March 31.

RCAP said that its total revenue dropped 23% in the second quarter of 2015 to $678.4 million. It also had a net loss of $66.1 million, or $-1.11 per share, vs. a loss of $48.5 million, or -$3.59 per share, a year ago.

The company had revenue specifically from equity sales in its wholesale business of $107.2 million in Q2, down 67% from the prior year; equity-product revenue was $89.1 million in Q1, off 50% from a year earlier.

“The series of initiatives and transactions announced today are intended to refocus the company on its core retail advice platform, Cetera Financial Group …,” said Mark Auerbach, non-executive board chairman of RCAP. “We believe these actions will enhance liquidity, improve transparency and corporate governance, and will allow the company to maximize value for all stakeholders.”

RCAP says it is now on the hunt for both a new CEO and CFO. Meanwhile, CEO Michael Weil and CFO Brian D. Jones will remain in their respective roles. Jones’ next role will be building the company’s investment bank and its advisory and capital-markets platform.

Its shares traded down nearly 30% on Thursday near $4.25. In the past 12 months, its stock has weakened about 80%. (It hit a two-year high of about $39.50 in early-April 2014.)

The retail-advisory unit has nearly $239 billion in assets under administration as of June 30, up 11% from last year. Assets under management grew 20% to almost $239 billion in Q2’15.

As for advisor recruiting, 267 financial advisors joined the firm in the second quarter with about $33.1 million in trailing-12-month fees and commissions. This production level is 184% higher than that of advisors who left the platform, the company says. It had a total of $21.5 million in net recruited production in the second quarter vs. $23.5 million in the first quarter.

“The investment by Apollo is recognition of our growth potential and the underlying strength of our independent retail advice platform,” said R. Lawrence “Larry” Roth, CEO of Cetera Financial Group, in a press release. “When the sale of the wholesale division is complete, RCS Capital will be more focused, simplified and better positioned to continue providing outstanding service to our advisors and their retail clients throughout the country.” 

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