Janney Montgomery Scott, one of the country’s oldest regional broker/dealers, has announced plans to buy Parker/Hunter, a small independent b/d-investment bank based in Pittsburgh.
Observers say the deal, whose terms have not been disclosed, is a sign of things to come, as smaller firms look to acquire economies of scale that will help them compete more effectively in the compliance-intensive brokerage business.
The acquisition would expand Philadelphia-based Janney’s branch network by 25 percent to 101 and its advisor workforce by 14 percent to 1,021.
Janney executives say the acquisition makes for a good geographical fit. “We had no previous offices in Ohio or West Virginia, and in Pennsylvania we were fortunate not to have any market overlap,” says Walt Westhead, a spokesman for Janney. He expects the NYSE to approve the deal in a month and firm operations to be integrated by mid to late summer.
Westhead says cost pressures were not an overriding factor in the deal and that the firms mesh well. “They fit us to a ‘T,’ both culturally and philosophically,” he says. Matt Bienfang, an analyst with TowerGroup, a Boston-based research firm, says the merger is probably more of a complementary nature than one of scale. "Parker/Hunter is a real wealth planning shop in a space where Janney has no presence," he says.
Still, industry observers expect many similar mergers to be driven by cost and regulatory forces. Rob Gannon, vice president and director of management services at the SIA, told Registered Rep. in December that the No.1 issue facing small b/ds was an increased regulatory burden imposed by the SEC and the NASD.
TowerGroup estimates compliance costs comprise between 7 percent and 10 percent of an average securities firm’s budget, but at smaller firms, the percentage is closer to 12 percent or 13 percent. Additionally, a Rydex Investments survey says that legal and compliance spending jumped a whopping 153 percent in the last year industrywide.
But costs aren’t the only reason to grow, says Andre Cappon, president of New York-based consulting firm, the CBM Group. “In general, across the industry, smaller firms are looking for purchasing power when it comes to products,” says Cappon. “As firms grow in size, their pull with asset managers increase. They can offer a greater amount of shelf space to managers and more product opportunities,” he says.