Raymond James’s acquisition of Regions Financial’s Morgan Keegan brokerage followed months of waiting after intentions to sell the firm were announced in 2011 and could be the first of many similar deals in 2012.
“I think you’re going to see more deals in 2012 coming through in a similar fashion,” Alois Pirker, research director at Boston-based financial services research firm Aite Group, said Wednesday. “It’s going to be a challenging year still ahead of us. I think the mid-sized firms will be subjects for acquisition. I think the firms that are strong can use the position to expand.”
Pirker said it is a positive move that Raymond James has firmed up a definitive stock agreement to acquire Morgan Keegan for $930 million. Regions first disclosed its plans to sell the brokerage unit in June. The sale process reportedly underwent multiple phases, including failed efforts to solicit private equity investors.
“Ultimately, Regions is going to be very happy they made that deal. The longer it drags on, the more the franchise is suffering. It has been going on too long already,” Pirker said.
“It’s a good move for Raymond James. Geography-wise, it’s a fit. It expands their private client business and capital markets business,” Pirker said.
Raymond James’s deal caps off a new surge of transactions for mid-tier firms in the industry, including LPL Investment Holdings’ acquisition of Fortigent and Cetera Financial’s deal to buy the broker-dealer subsidiary of Genworth Financial. Other firms in that market, like Edward Jones and Royal Bank of Canada, or RBC, are also well positioned, Pirker said.
“You have this group of firms that are typically sort of coined as regionals, but actually for regionals they are big regionals,” Pirker said. “If you are stuck in the middle there, you kind of have to do the same amount of everything that a large firm does, but you’re lacking scale, so obviously it’s a tough position to be in. So either you grow through acquisition or organically.”
But exactly where more deal activity will crop up this year will depend on circumstances, Pirker said. Regions Financial might not have been interested in selling Morgan Keegan if it had not been interested in boosting its capital position, he said.
Regions Financial still owes $3.5 billion it received through the Troubled Asset Relief Program.
Lorie Konish writes for On Wall Street.