RBC Dain Rauscher: The Next Brokerage Buyer?

RBC Dain Rauscher is on the prowl for a brokerage acquisition. The Minneapolis-based regional brokerage is aiming to increase the firm's rep force to 2,500 brokers within five years from 1,650 today

RBC Dain Rauscher is on the prowl for a brokerage acquisition. John Taft, the new chief executive of the Minneapolis-based regional brokerage, is aiming to increase the firm's rep force to 2,500 brokers within five years from 1,650 today, and says one strategy for getting there is acquisition.

“If we get there through organic growth, recruiting and acquisition over next few years, it would be great,” says Taft. The potential acquisition candidate would be a regional firm with several hundred reps that Dain Rauscher could “tuck into” its culture, Taft says. He adds that the firm is “very flexible and open” on the question of where, though published reports suggest a good fit would be the Southeast, where RBC's U.S. bank subsidiary, RBC Centura, is located.

RBC has had an uneven track record in building up its brokerage force: The number of reps has slipped about 20 percent since Royal Bank of Canada acquired the firm in 2001. But recent operational improvements in the past two years and new leadership put the firm in a good position to buy, according to analysts, including James Bantis of Credit Suisse, who estimates the firm could make an acquisition within the next year. “Over the past 12 to 18 months, Dain's focus has been on improving its operations, and it's made some solid strides,” says Bantis, including raising revenue per advisor to $430,000 from $390,000 in 2004. Meanwhile, Taft came on as CEO in the fall of 2005, replacing former CEO Brian Peters. Bantis estimates the firm could make an acquisition within the next year.

Acquisition has been a popular growth strategy within the brokerage business as of late. The most recent example is UBS' acquisition of Piper Jaffray's brokerage unit. Last year, Merrill Lynch acquired Advest, while Citigroup swapped its asset-management business to Legg Mason in exchange for that firm's brokerage unit. Of course, Dain Rauscher is a much smaller firm than the other acquirers. Still, it has the backing of its giant parent Royal Bank of Canada, which folded a couple of small acquisitions under the Dain banner in 2001.

RBC Dain Rauscher's growth plan may seem modest, but, as Bantis puts it, “They're just looking to be one of the largest firms within the second-tier unit of brokerages.”

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