Independent broker-dealer Kestra Financial is being bought by the private equity group Warburg Pincus, the firm said early Monday. Its prior owner, Stone Point Capital, will keep a minority stake in it, as will its management and possibly some of Kestra’s roughly 2,000 affiliated advisors.
Warburg Pincus comes with some fairly deep pockets — $43 billion in assets in under management invested in about 180 companies. Stone Point works with $19 billion.
“Warburg is a savvy PE firm in the space, with an investment in Facet Wealth and prior investments in The Mutual Fund Store and Financial Engines,” said Chip Roame, head of the consulting firm Tiburon Strategic Advisors. “This move continues a trend of PE firms acquiring IBDs.”
Plus, given questions over how long stocks can stay at their current level, Kestra’s timing at finding such a partner is quite good, according to recruiter Jon Henschen of Henschen Associates.
“Warburg entering into a purchase at this point of the market cycle is an indicator that they will be a longer-term player, weathering through any market downturn,” he said. “In market downturns, when capital is in short supply, PE firms are your best friend.”
Other industry watchers, like Nexus Strategy’s Tim Welsh, agree. “For Kestra, this is very good news to have a growth buyer in their camp, a firm that will invest in the business, particularly now that the Department of Labor’s [proposed] fiduciary rules are way in the rearview mirror,” he said.
Kestra President & CEO James Poer is pleased, as well. “The transaction came up faster than we anticipated and is the right thing for us to do,” he explained.
Details of the Transaction
The Kestra deal has been estimated at between $600 million and $800 million (or 8-10 times earnings before interest, taxes, depreciation and appreciation). That compares with Genstar Capital’s recent purchase of Cetera Financial — which has over 8,000 affiliated advisors — for $1.7 billion.
“Stone Point more than doubled their investment in three years and are keeping a minority interest, which will most likely be the 20% minority stake that NFP still maintained,” according to Henschen.
“In spite of this being the third majority PE ownership change at Kestra, every change that has occurred has been a nonevent for the advisors, with no re-papering [of accounts], same management, same impressive staffing levels and technology.”
In addition, Henschen says that he’s heard some advisors and employees could be given access to company shares, namely producers of more than $500,000 in yearly fees and commissions. (Kestra will not confirm any details on the announced deal.)