E-Trade Financial Corp. says it has struck a deal to buy Trust Company of America (TCA), which provides custody services and technology to the independent RIA market, for $275 million in cash.
Denver-based TCA has some $17 billion in institutional assets under custody and more than 180 RIAs on its platform as of Sept. 30. These RIAs include about 7,000 financial advisors.
“I am pleased to announce the acquisition of TCA, a leader in their field, which will help us tap into a growing segment of our industry, and bolster our ability to attract and retain customers in need of higher-touch services,” said E-Trade CEO Karl Roessner in a statement.
“TCA’s superior technology solutions in the RIA space are a natural complement to the cutting-edge digital experiences we offer to retail investors,” Roessner said. “Beyond the ability to offer enhanced services to certain segments of our client base, we are confident that the extension of the E-Trade brand will provide the TCA team with some additional firepower to accelerate growth.”
E-Trade says the transaction should be neutral to earnings in 2018 and accretive in 2019. It plans to close the deal in the second quarter of 2018, subject to customary closing conditions and regulatory approvals.
At least one industry insider questions the price tag being paid by E-Trade.
Michael Kitces, partner of Pinnacle Advisory Group asked on Twitter Friday: “TCA had $17B of custody assets. At 0.25% [of] 12b-1/sub-[transfer asset fees] that’s $42.5M of revenue. E-Trade bought for 6.5X rev???”
“Trying to figure out massive ‘hidden asset’ in the TCA deal to justify this? Not a bad company to buy at all. But $275M for $17B assets?” he added.
One advisor, Kim Miller, CFP, replied that E-Trade’s motivation was centered on “captive trading volume.”
“OK. But still – you can only generate ‘so much’ revenue/assets at today’s ticket charges,” Kitces replied.
Other industry watchers chimed in later on the thread with their own explanations.
The E-Trade M&A news comes one month after TD Ameritrade completed its $4 billion acquisition of Scottrade. That deal was announced a year ago; at the time, the two firms were expanding their work as custodians for RIAs and had a combined $945 billion in retail-investor and RIA-related assets.
Earlier this week, E-Trade said its third-quarter net income was $147 million, or $0.49 per share, down from $193 million, or $0.70 per share, in the prior quarter, but up from $139 million, or $0.51, in the year-ago period.
Total net revenue of $599 million grew from $577 million in the prior quarter and $486 million in the third quarter of 2016.
In the most-recent quarter, the firm completed its integration of OptionsHouse.
“This allows us to decisively pivot our efforts toward unleashing the full power of our industry-leading derivatives platform,” Roessner said in a statement.