CASE STUDY #1401

The Issue:
The Client was a growing, profitable and producing General Securities Broker Dealer. They wished to participate in an opportunity which would require a staff double in size to their current operation. They could build to accomplish this growth, but this would take time – and the opportunity at hand required they be operational at this new level in a matter of weeks, if they wished to avail themselves of it. They wanted to purchase a similar firm immediately, with a skilled working staff that would stay on and could handle this new business.

> The Chief Executive of the client firm would not stay on after purchase; so the firm would face the additional hurdle of finding a new chief executive.

> The Client also wanted the new employees to start work immediately on their new project. This posed certain problems, as a change in ownership must be reviewed and approved by the FINRA, prior to new management exercising control.

The Challenge:
Identify a similar firm who would fit all of the specific parameters, was willing to sell at a reasonable price, and come up with a solution for the major regulatory hurdle they faced: management of a purchasing firm may not exercise any control until the purchase has been reviewed and approved by the FINRA, subject to rule 1017 and associated rules. The buyer required that there be no downtime at either firm.

The Approach:
Discreetly identify a potential match, while working with FINRA to find a solution to the problem with respect to change in ownership regulations, as applicable to the buyer’s desire to have employees of purchased firm start work immediately.

> A seller was identified: a general securities firm with numerous reps, producing and profitable. This firm enjoyed an excellent reputation, having been built by the owner over many years. Owner was willing to sell to a quality firm which could protect his legacy, and further, he was willing to stay on for a limited time, in order to facilitate transition.

> Buyer needed a new executive, but did not want the head of the purchase firm to run the show. This posed a particularly serious obstacle to the new employees starting work immediately, as any change in ownership must be reviewed and approved by FINRA, prior to new management exercising control.

Recommendation:
BDM identified a potential seller. The owner of this producing and profitable Broker Dealer desired, after building his business for many years, to retire. His firm was well known, clean, and had an excellent reputation. Furthermore, he agreed to stay with the firm after purchase to facilitate the change in ownership.

But the purchaser did not want the current owner to stay on. BDM located a senior compliance officer with a twenty year clean record. Additionally, this executive was very well known to FINRA and had shepherded changes in ownership previously. With approval of FINRA, this qualified executive could join the selling firm and shepherd the transition to new ownership. He would join the firm, not as a consultant, but as a permanent executive officer. His status, experience, reputation and relationship with FINRA district office could solve these issues, provided FINRA would approve. Both firms were introduced to the executive, and both found him to be an ideal candidate, not only for the transition, but for the continued operation of the new firm.

Result:
With the assistance of the FINRA district, BDM was able to arrange an almost seamless transition. By following BDM’s proprietary purchase process, the buyer was able to acquire the seller, with no work stoppage. The seller cashed out (and did not need to stay on) and the buyer doubled the size of his firm. The new reps were absorbed successfully, and the new employees of the purchasing firm were able to begin work immediately on the purchasing firm’s new project. The transition to new ownership was shepherded quickly and efficiently by the new executive officer, who completed the 1017 process. The client leapfrogged in size, revenues, and net profits, while experiencing a reduction in costs.

> The client effectively doubled his size and work capability, allowing the firm to take on the new business immediately.

> The firm got a new chief executive who had a decade’s long, excellent working relationship with the local FINRA district. His coming aboard facilitated the change in ownership.