In one fell swoop, Dain Bosworth in Minneapolis and Rauscher Pierce Refsnes in Dallas have combined forces to become the nation's 9th largest full-service brokerage firm, just a handful of brokers shy of EVEREN Securities' 1,280 producers.
The combining of the sister companies this month came as speculation mounted that parent company Interra Financial would be acquired by a bank.
Rauscher has about 300 reps; Dain Bosworth employs 850.
The newly structured company will begin calling itself Dain Rauscher this January, pending regulatory approval of the merger. The move comes just one year after the firm swapped the name Inter-Regional Finance Group for Interra.
The new Dain Rauscher will look to expand by opening its first offices in California, but says it has no intention of becoming a wirehouse and "heading east." The firm will base its operations in Minneapolis and look to capitalize on growth potential in Texas and Illinois as well.
Some 100 employees will be terminated, mainly in management and administrative positions in Dallas. That, coupled with restructuring, will represent a $10 million savings to the firm.
No brokers will lose their jobs, but Rauscher Pierce reps will see their top 40% payout trimmed by several percentage points as the new firm adopts Dain Bosworth's more conservative grid.
Despite a few grumblings about pay cuts and the loss of a few friends at the research desks, for the most part, brokers seem upbeat about the deal, noting that the firm will have access to research analysts previously unavailable when the firms were separate.
"Dain Bosworth didn't have an oil analyst and Rauscher Pierce Refsnes has got the best oil-field services analyst in Jim Wicklund," says Spencer McGowan, a registered rep with Rauscher Pierce Refsnes in Dallas. "We don't really have a health care analyst and Dain Bosworth has a nationally ranked team." Rauscher Pierce also has a top-rated tax-free municipal desk that he suspects will win out when the companies combine strengths. "Anything that was duplication, the best team won," McGowan says.
McGowan also believes brokers will see technological advantages that weren't available at the smaller firms.
He says Dain Rauscher will look to provide clients with on-line access to account information in the coming year. The firm already has spent millions beefing up its performance reporting technology, one of the first firms to offer clients monthly performance reporting on investment portfolios.
Ron Tschetter, executive vice president and director of retail sales at Dain Bosworth, says the combination of the two firms was prompted by the changing economic landscape in financial services and the difficulty of competing with small regionals.
"The price of poker has gone up," Tschetter says, making it difficult for Interra to continue its strategy of purchasing a stable of mid-cap regionals. "To make those acquisitions looked too expensive."
A spokeswoman for Dain Bosworth notes that the PE ratios on potential acquisitions has increased considerably since the Federal Reserve Board voted last December to allow commercial banks to acquire investment banks. As banks bid up prices, Interra's strategy to purchase additional regionals seemed out of reach, she says.
"The only bad part is we don't get to sell our stock for a higher price," McGowan says jokingly of the combination of the two firms that most likely precludes an acquisition, at least for the time being. "We thought we were going to get bought by a bank."