What's an acquisition worth these days? Much more when you can deliver most of the reps, as UBS seems to be doing in its takeover of Piper Jaffray. As of the close of the deal on Aug. 14, UBS had retained a solid 85 percent of Piper's 840 reps — a 15 percent attrition rate. (And recruiters say they don't expect that number to change much.)
Still, it seems when one broker/dealer buys another, many top producers jump ship, lured by rivals waving big signing bonuses. In May, Doug King, who manages the Minneapolis-area offices of Merrill Lynch, signed a dozen top-producing veteran brokers from the Piper Jaffray office in Wayzata, Minn., an affluent suburb on the shores of Lake Minnetonka. King plucked a plum of a team, with $1.2 billion in client assets managed by the likes of Jack Swenson, a 35-year veteran of Piper, and Mark Eckerline, a 25-plus year veteran.
Piper's Wayzata branch was just one office among many that rival b/ds — Merrill, Wachovia, Morgan Stanley and RBC Dain Rauscher, among others — looted in the wake of UBS' $500 million acquisition of Piper Jaffray, announced in April. In today's cutthroat recruiting environment, some rival firms offered as much as $1.5 million to hire away Piper's biggest players. But that's business as usual in the brokerage industry, where there are usually widespread broker defections following an acquisition.
Piper's retention rate is a heck of lot better than Merrill Lynch did in its $400 million acquisition of Advest, which closed last year. Merrill watched a whopping 417 — out of total of 515 — Advest reps defect, an astonishing 80 percent attrition rate, according to Registered Rep. research. What initially looked like a bargain for Merrill turned into a disaster: The firm ended up paying about $4 million for each broker who remained. Assuming at least 700 former Piper brokers stay with UBS in the long run, the firm will have paid out about $700,000 for each one — not bad, considering average annual production for a Piper broker is $500,000. Citigroup's Smith Barney also enjoyed a much higher retention rate with its acquisition of Legg Mason — a regional firm that many said possessed a very different corporate culture — last year. But many credited the high retention rate to a three-year exclusivity deal for top Legg Mason funds, such as the legendary Bill Miller's fund.
The Deal
So what did UBS do right? The Swiss giant's retention bonuses were very much in-line with those offered to Advest brokers by Merrill Lynch. Top Piper Jaffray brokers — those generating annual commissions and fees of over $1 million — get 70 percent bonuses if they stay with the firm for five years, or a maximum of $750,000, while lower-end producers — those producing around $200,000 — get about 10 percent. Merrill had almost an identical deal: 50 percent of trailing 12-months production for those brokers generating above $1.5 million in production a year, with a sliding scale sinking to 10 percent for those on the bottom.
But recruiters say UBS and Piper are a much better cultural fit than Merrill and Advest were. While UBS management got in touch with Piper managers and brokers as soon as the deal was inked, Merrill management, as Registered Rep. reported in its May story, “Failure to Launch”, was too busy with a branch-office reorganization to fill Advest brokers in on the retention packages, or what their future at Merrill would look like.
“Advest had a very specialized kind of broker — they would focus on commodities, for instance. They were not always close to the traditional brokerage business,” says Michael King, president of Wall Street search firm Michael King Associates. “But Piper Jaffray's business fits into a bigger firm. Piper is a stock-and-bond management shop,” he says.
What's more, UBS' offices in the U.S. are basically PaineWebber's old offices in disguise. They still have a more intimate, small firm feel to them, says King. “You have the PaineWebber legacy here, and PaineWebber was more individualized, had more direct interaction with management.”
Martin Hoekstra, the 46-year-old head of UBS Wealth Management U.S., made sure Piper reps experienced that kind of interaction firsthand. He spent weeks flying a UBS private jet around to Piper offices, meeting with branch managers and brokers and offering encouragement. “UBS took the steps to keep the people early — they had people in place to meet with Piper people as soon as it was announced,” says King. “I'm sure we'll give them reason eventually to complain about UBS being too big and bureaucratic,” Hoekstra said. “But I understand what they want in a firm.”
It can't have hurt that UBS threw in an incentive payment for Piper management: a $75 million bonus on top of the $500 million acquisition price — promised if UBS retained at least 90 percent of the Piper brokers. While Piper has already missed its chance for the full bonus, it still has a crack at a prorated portion of that money if the retention rate is between 80 percent and 90 percent in the 30 days following completion of the acquisition.
Craig Shaver, 50, a 20-year Piper veteran says: “Hoekstra is a smart, honest guy. Plus, I want to keep my clients here and keep working with the terrific people I've been working with. To [Piper Jaffray CEO] Andrew Duff's credit…he sold us to a high-quality firm. I couldn't be more enthusiastic for my clients or my career.”
