The anticipated sale of the ING broker/dealer network was made official early this morning as the struggling Dutch parent company shed the three independent firms to a private equity firm for an undisclosed amount.
Financial Network Investment Corporation, in El Segundo, Calif., Multi-Financial Securities Corporation, in Denver, and PrimeVest Financial Services, of St. Cloud, Minn., were sold to New York-based private equity firm, Lightyear Capital. “Everyone’s known a deal was going to happen here, and have just been waiting for the other shoe to drop. It will be interesting to see if the new parent company will honor the legacy of the b/ds or start over,” says Philip Palaveev, president of Fusion Financial Network, an Elmsford, N.Y.-based network of advisors.
Lightyear was founded by former Paine Webber CEO Donald Marron.
Multi-Financial and Financial Network are “some of the oldest and most established independent b/ds in the space. They are the grandparents of the modern independent b/d channel,” Palaveev says. The three b/ds have about 5,000 reps and generated $600 million in revenue in 2008. “It’s significant for the independent b/d industry in that one of the largest b/d networks in the space is seeing a major change of ownership,” he adds.
Valerie Brown, who took over in May, will remain CEO of the network after the deal closes, which is expected in the first quarter of 2010. “This transaction simplifies ING’s structure in the U.S., and allows us to focus resources and capital on our core Retirement Services, Life Insurance, and Rollover Annuity businesses,” said Tom McInerney, member of the Management Board Insurance of ING Group. “It is also in the best interest of the broker/dealers, their employees, and the affiliated representatives and financial institutions, to find a new ownership structure. We believe that Lightyear will be an outstanding owner of these broker-dealers and be able to ensure a promising future for these businesses.”
Lightyear was also in the bidding for the AIG b/ds when that group was up for sale over the last year. But in August, AIG announced it would keep the b/ds afterall. According to one source familiar with the deal, Lightyear paid less than 50 percent of revenue for the b/d group. ING declined to comment on the price due to an agreement with the parties involved.
While the terms of this specific deal are undisclosed, industry consultants say the most an independent b/d could expect in this market is about 1x revenue. John Busacca, owner and CEO of Broker Dealer Exchange, a financial services acquisition intermediary, says a close look at a b/d’s business is needed in order to determine its value. “If you’ve got an outstanding b/d that is transaction based and also has some fee-based business, you might get the 1x revenue. But we’re seeing most deals in the 30 to 50 percent of revenue range,” Busacca says. In 2006, the deals reached 2 to 3 times revenue. “There’s a lot of struggle with deals out there right now. Buyers are looking more at net profit of the b/ds, while the sellers want 1 times revenue,” he adds.
Mark Harris, president and CEO of Broker Dealer Market, which specializes in facilitating the sale of b/ds, says all of his big potential deals have been put on hold in this market. “Everyone involved in the larger deals out there are sitting on their hands. The days of big multiple in the independent arena are long gone. Two years ago, 1 to 1.5 times revenue was normal,” he says.
Alois Pirker, an analyst with Boston-based Aite Group, says the real winner in the deal is Lightyear Capital which probably bought the b/d group at a low price. He says ING has been under pressure from the Dutch government and the European Union to break up and sell some of its units to raise capital and pay back some of the 10 billion euros it received as part of a bailout. (Last week, ING announced it would divest itself of its insurance operations.) Because of that pressure, Pirker says ING didn’t have the luxury of time to wait and find a strategic buyer for the perfect price. “ING was looking to sell swiftly and shopping around wasn’t really much of an option. Lightyear now has the benefit of being able to do that now,” he says.
Selling off units of business is a common theme right now among financial conglomerates looking to raise cash or satisfy the governments that loaned them money. “We saw it happen to Citigroup with Smith Barney, and Bank of America sold First Republic more recently. It’s certainly happening in Europe as we see from the ING sale. And we’ll probably see more sales like this in the near future.” Pirker says.