Debt-financed M&A may push firms to shed assets: Tibergien

investmentnews.com:

The debt-financed, $1.2 billion acquisition of Avantax Inc. and its 3,100 financial advisors that Cetera announced last week is not only an indication of firms’ interest in nabbing more and more wealth management assets, but also shows how using debt to fuel such deals could further reshape the financial advice industry landscape, according to one senior industry executive.

“Some debt is short and some of it is long, and keeping that in balance is a stress test for borrowers,” said Mark Tibergien, who retired as CEO of Pershing Advisor Solutions in 2020 and is now a management consultant. “The implications are that some of these firms may think of divesting pieces of an acquisition to focus on core businesses.

“For example, say a firm did most of its acquisitions with firms that have clients in the middle market but wound up with an ultra-high-net-worth business, or clients with $30 million or more,” said Tibergien, whose comments were about broad industry trends in the wealth management industry and not specifically about Cetera. “That’s a logical decision. Once a firm has been acquired, it has to be integrated and then grown or expanded. That means more resources will be consumed.”

Cetera Holdings, a huge network of broker-dealers with 9,000 financial advisors and $341 billion in client assets, said last Monday it was going to buy publicly traded Avantax for $26 per share. The acquisition is expected to close by the end of the year, with Avantax operating as a stand-alone business under the roof of Cetera.

Following the announcement of the deal, two ratings agencies put the debt of Cetera’s parent, Aretec Group Inc., on review. That means the company faces potential downgrades to its debt, which could drive up the