The ranks of publicly listed retail brokerage companies will expand by one with news that a capital pool company is set to acquire privately held Hampton Securities, a firm that has been around since 1996, and which now plans to be an industry consolidator.
The deal is by way of a reverse takeover and will count as a so-called qualifying transaction for Dominion General Investment Corp., the capital pool company taken public in late 2014.
Hampton will also be in the market with an equity offering that could raise $20 million. (For the reverse to proceed at least $2 million has to be raised.) That cash will be used to acquire other dealers — particularly those that operate under an IIROC registration — or individual brokers.
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“A lot of the dealers are looking for an opportunity to either consolidate, merge or to get an exit strategy,” said Peter Deeb, Hampton’s chief executive. “And none of that exists in an easy transaction, so we thought we would lead the way. So we will raise $20 million, put it into a public vehicle and use that to execute our roll-up strategy.”
There has been some consolidation: For instance, Echelon Wealth Management acquired Pope & Company and the retail brokerage arm of Dundee Securities; Vancouver-based PI Financial Corp. is acquiring the retail clients of Wolverton Securities and Global Securities Corp. Mackie Research and Leede Financial Markets have also been busy.
Hampton is embarking on its consolidator role with some advantages: It is starting with a reasonable base given that it is home to 37 advisors and associates who oversee about $650 million of client assets. And to the extent that the equity offering is successful, it will have cash.
And it sees the potential economic benefits — the economies of scale — from putting a number of dealers under the one banner. “The synergies from putting two $500 million firms together are profound,” said Deeb.
Hampton’s financial statements for the past three years are indicative of the pressures faced by the independent retail-oriented firms. For the three-year period ending Aug. 31 2015, revenue has tended to fall and losses have tended to increase each year. No cash dividends have been paid.
Deeb said he was approached two years back by private equity funds interested in pursuing a roll-up strategy. “They saw, what we saw, which was an opportunity to acquire businesses in what was a very difficult period in the market through a public vehicle.”
But deals didn’t eventuate, in part, because the players were focused on “the downward spiraling situation. Now things have levelled off and people can think rationally about their businesses,” noted Deeb who had about 30 discussions with other firms over the past two years.
Hampton’s roll-up strategy comes at a time when the bank-owned dealers are also implementing new approaches: In general they want more of their brokers to be fee-based (in part because the revenue is more predictable); they want more of them working in the branches (because compensation would be lower); they want more of them to achieve higher levels of production and assets under management. If the advisers don’t achieve those levels, they, as 60 found out last week at Scotiabank, get unceremoniously put on the bus.
At least one high-profile figure is on board with the plan: John Sununu, chief of staff to U.S. president George H. W Bush from January 1989 to March 1992, is set to be a director of Hampton. Sununu was also governor of New Hampshire.