A group led by real estate investor Nicholas Schorsch is acquiring independent broker-dealer First Allied Securities from Lovell Minnick Partners "because we believe in the alternative space," Schorsch said, in an interview. "We looked at First Allied's business specifically for what it offers RCAP Holdings, not for distribution of product," he said. "We sell so much …, have a 51% market share and have raised probably $4 billion this year … we do not need more advisors selling our products."
Schorsch is chairman and CEO of RCAP Holdings, which owns Realty Capital Securities, a wholesale broker-dealer and affiliate of American Realty Capital Properties, as well as several other entities. "It's the opposite thinking from the idea that we want more distribution. First Allied is not a top-10 distribution source for us. They only sell three products for us," he added. "This is the RCAP partnership investing in an industry we believe in.
As interest rates move higher, Schorsch says, the broker-dealer business is set to grow its profits. "We are at a vanguard tipping place. First Allied is and will continue to be completely managed by the existing executive team who have been running it under Lovell Minnick," the current private-equity owner.
San Diego-based First Allied, which acquired the Legend Group in late 2012, includes a network of about 1,500 independent financial advisors with more than 300,000 clients and over $32 billion in assets. In 2012, its revenue totaled about $233 million, with the average fees and commissions per advisor at $293,000 and average assets per rep at $29 million, according to Investment Advisor's 2013 Broker-Dealer Reference Guide.
As for why the deal is taking place less than two years after Lovell Minnick acquired a majority stake in the IBD, First Allied CEO and President Adam Antoniades said in an interview, "The time frame is shorter than first contemplated, of course. But every organization is for sale—every day of the week."
With Lovell Minnick, the IBD had "a great partner that shared with us strategic thinking, fiscal responsibility and other disciplines that we will take with us for many years to come," Antoniades noted. "Like other broker-dealers, we are looking to generate a return. For us, this [RCAP deal] gives us ability to accelerate well-established initiatives through which we can drive our organization forward …To maintain our value proposition, we have to roll out specific initiatives, and [with RCAP] we can accelerate investments in our initiatives. They are passionate about our industry and the challenges it faces."
"This is not non-traded REIT money" going into an IBD, said Schorsch. "It's our private capital, not investors' capital. And it's not private equity looking for a hot trade."
