Lightyear to exit Cetera Financial with $1.15 bln sale

RCS Capital Corp is buying the independent broker-dealer for $1.15 billion. Cetera, a network of four broker-dealers, has 6,660 registered representatives and $145 billion in client assets under administration. The El Segundo, Calif.-based company targets “Mass Affluent America,” or clients with $100,000 to over $1 million in investable assets.

RCS is funding the deal with $104 million of cash on hand. The company is receiving another $10 million from RCS partners, while Luxor Capital Group, a new York hedge fund, has committed to provide $370 million in equity financing, RCS Capital said. Barclays and BofA Merrill Lynch are providing $725 million of debt financing.

The transaction is expected to close in the second quarter.

Cetera was created after Lightyear acquired ING Advisors Network and three of its broker-dealers in February, 2010, and renamed the units.

It’s unclear how much Lightyear paid for its majority stake, but the investment came from Lightyear’s second fund, which collected $850 million in 2006. In 2012, Cetera, in turn, acquired Genworth Financial Investment Services.

Lightyear has already received some of its investment back. Cetera launched a $265 million term loan last summer that was then cut to $210 million, according to Thomson Reuters LPC, which tracks the loans market.

Proceeds were used to buy two brokerage units from MetLife and to fund a dividend to shareholders, Moody’s Investors Service said. Cetera’s shareholders reportedly received $81 million as part of the dividend.

The sale of Cetera to RCS was not conducted through an auction process, a source said.

Instead, RCS approached Cetera roughly six to nine months ago, returning after Thanksgiving with a preemptive bid, sources said.

Lightyear was keen for Cetera’s management to remain intact and RCS confirmed that President and CEO Valerie Brown and her management team would continue to run the business.

Cetera’s sale is the latest in a string of deals in the asset management industry.

In December,  Lightyear agreed to buy Ridgeworth Investments for $265 million. That deal was followed in January by Northwestern Mutual Life, which said it has hired Goldman Sachs to sell Russell Investments, which has $247 billion in assets under management and runs the Russell Indices.

Last year, Reuters reported that Numeric Investors, a quantitative equity manager, had put itself up for sale, although that deal is understood to be on hold.

The asset management industry has become more important as individuals gain control of more assets, said Donald Marron, Lightyear’s chairman. Traditional pension plans have declined in popularity, while defined contribution plans, like 401(k)s, have surged.

“You’ve created a rapidly growing aggregate of accounts that need management,” he said. “People need advice on how to manage their money, their 401(k)s.”

Marron founded Lightyear in 2000 with a focus on middle-market financial services companies in North America. Marron is the former chairman and CEO of Paine Webber Group, which was sold to UBS AG in 2000 for $10.8 billion.

In 2012, Lightyear closed its third fund at $954 million. Once Lightyear completes its buy of Ridgeworth later this year, Fund III will be more than half invested, a source said.

William Egan of BofA Merrill Lynch provided financial advice to Cetera. RCS’ investment banking arm, while Barclays acted as financial advisors to RCS.

Luisa Beltran is a senior reporter for peHUB

(Correction: Lightyear collected $850 million for its second fund. The original version of this story had an incorrect figure.)