UPDATE: Alex. Brown May Rise Again from D-Bank’s Ashes
(Revises throughout to show terms of the deal Raymond James announced after our story was published on Wednesday.)
In confirming their unusually structured deal, which will make the Deutsche brokerage unit a separately named division of Raymond James, the Florida-based regional brokerage firm said the final price it will pay will be tied largely to how many of the approximately 140 financial advisers and their teams it retains.
Raymond James agreed to pay 1.4 times the $300 million of revenue produced by the Deutsche brokers, subject to price adjustments based on advisor retention as of March 2017. It estimated that about 70 percent of its investment will go toward retention packages, most of which will amortize over seven years from the deal’s closing in the second half of next year.
What remains to be seen, of course, is just how many of Deutsche’s advisers, whose average production of about $1.5 million and average client assets of about $250 million far exceed those of RayJay brokers, will take the deal.
related: Radio Silence On RJ-Deutsche Deal
Prior to the announcement, several people briefed on outlines of the deal said Deutsche brokers would likely doubt Raymond James’s ability to provide the hedging, currency, equity and alternative investment products that their sophisticated clients demand.
But Ariyan, in pulling off an arrangement that saves his job and virtually guarantees an employment option for his brokers, took care to keep important ties with the German banking giant.
Deutsche Bank and Raymond James plan to enter into a long-term agreement that will make the new retail division Deutsche Bank’s “critical distribution partner for equity new issue securities to institutional and high-net worth clients in the US,” Raymond James said in a prepared statement. The deal also will offer Raymond James brokers “access to alternative investments and other sophisticated investment solutions” appropriate for high-net-worth clients, it said.
Announcement of the deal was delayed numerous times in the past months amid strenuous negotiations over the organizational structure as well as financial details, according to sources at both firms. As late as Wednesday, our sources told us they expected the Deutsche Bank group to establish itself as an independent broker-dealer using the Raymond James platform.
related: Deutsche Bank Hunkers Down
Instead, the new division that Raymond James is purchasing will operate under the all-American Alex. Brown brand name, the companies said. Alex. Brown & Sons, founded in 1800, was the United State’s first investment bank. It was bought by Bankers Trust New York Corp., which was sold to Deutsche Bank in 1999 for $9 billion.
The deal does not include the Deutsche Bank’s U.S. Private Bank, led by Chip Packard.
The delays in announcing the deal led some nervous advisors to accept deals from other firms. For example, John McCauley, head of Deutsche’s midwest region, is on garden leave and headed to Wells Fargo, a well-placed source told us. McCauley did not respond to a message seeking comment. A call to his office confirmed he had left.
Another roughly $3.2 billion Deutsche team led by David La Placa and Jay Casey left in June to start their own firm, Intellectus Partners.
If it succeeds in retaining a meaningful number of Deutsche brokers, Raymond James would have a coup second only to its April 2012 acquisition of Morgan Keegan & Co. for $1.18 billion.
For Raymond James’ investor presentation on the deal, click here.