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New Mega Firm: RCAP Announces $1.15B Acquisition of Cetera

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RCS Capital moved to become the nation's second-largest independent broker-dealer by advisor count on Thursday by agreeing to purchase Cetera Financial Group for $1.15 billion in cash.

The deal was driven by RCAP's desire to target the $7.5 trillion mass affluent market that is increasingly focusing on retirement needs, RCAP chief executive William Kahane said at a press conference. "This is a market whose reliance on good financial advice is more important than it's ever been," Kahane said.

The newly combined retail advice platform, which is expected to challenge LPL Financial, the industry's leading independent broker-dealer, will have approximately $1.7 billion in revenue, 8,900 advisors, $191 billion in assets and 2.6 million clients, company executives said at the press conference.

In a press conference RCAP projected estimated revenue of $3.1 billion (including the firm's wholesale distribution, investment management and investment banking and capital markets businesses) which would make the firm the second-largest independent broker-dealer by revenue according to Financial Planning's 2013 rankings.

However, with expected revenue of $1.7 billion, the retail advice platform alone would make the newly combined group the number three IBD, behind LPL Financial and Ameriprise and ahead of Raymond James.

Valerie Brown, president and chief executive officer of Cetera, and her management team will continue to operate Cetera’s respective brands as part of the RCAP family of companies. The deal is expected to close later in 2014.

"We intend for RCAP to be the most important full-service financial services and securities distribution company in the industry by joining our financial advice practice, wholesale distribution and capital markets expertise, and continuously executing on these strategies through our transaction management group," RCAP Chairman Nicholas Schorsch said in a statement. ''Furthermore, it is our plan to rapidly build out our footprint across America in one seamless step with our family of independently operated retail firms, led by Cetera.”

Cetera was formed in 2010 following the sale of three ING broker-dealers and is owned by private equity firm Lightyear Capital. Its four distinct independent broker-dealer platforms include Cetera Advisors, Cetera Advisor Networks, Cetera Financial Institutions and Cetera Financial Specialists.

“This transaction immediately affords us the benefits of scale, while setting the quality standard in the industry," Kahane said in a statement.  "It enables us to diversify our revenue streams and position our securities sales business to attract best-of-class third-party sponsors, thus mitigating concentration risk among our retail firms. It adds substantially to our assets under administration, and makes our overall enterprise uniquely attractive to other retail advice firms who believe they could benefit by aligning themselves with a dominant, well capitalized, public firm with a complete understanding of the industry and a demonstrated commitment to excellence.”

Bank of America, Barclays and Luxor Capital Group provided financing for the deal.

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