CASE STUDY #7802

The Issue:
A large regional bank wanted to expand its services by offering on-line banking and brokerage services to its clients. .To that end, the Bank wanted to purchase a turnkey profitable, clean, On-Line General Securities brokerage with an existing client base and an existing staff, who would all be willing to stay on.

> The bank wanted a turnkey online brokerage with proprietary software and an in-house development team.

> The Client also wanted the brokerage in a specific state, and was unable to locate any interested in selling.

The Challenge:
The Bank had some very specific further requirements: the brokerage must be in a particular state, with a high percentage of clients in that state. The brokerage must also have its own proprietary software, and an in-house development team to integrate the software. The bank was interested in making this acquisition as soon as reasonably possible – and at a reasonable price. Recently, an online brokerage firm had been sold for what could only be considered an extreme premium, and online brokerages were quoting much higher prices as a result.

The Approach:
BDM proposed to utilize its’ relationship base to confidentially locate a seller fitting the parameters.

> Recently, an online brokerage had sold at a price that many believed to be a huge premium. Online Brokerages were now quoting prices orders of magnitude greater than traditional valuations would have generated.
> Buyer was willing to pay a fair price and a premium, but could not justify an out-of-this-world premium.

Recommendation:
A former client of BDM had, some two years earlier, purchased a clean shell Broker Dealer in the state specified by the Buyer, through BDM. The former clients’ business plan had been to introduce his sophisticated proprietary online trading software, and build an online discount brokerage. He had executed successfully, and the company was now producing and profitable, with a good client base. The firm had built a clean, sound reputation in the online discount brokerage market, and had invested heavily in an advanced network infrastructure. The owner had also begun a new, unrelated project – and he expressed his interest in devoting more time to it, but was unable to do so because of his day to day responsibilities at the Broker Dealer. Significantly, he had toyed with the idea of selling, but had not made any serious efforts. But he was interested in preserving his firm, and finding a buyer who would retain all of the employees of the firm, and continue to grow his firm in a way that could compete with the biggest online brokerages - who were now pumping hundreds of millions into advertising. When approached with BDM's solution, he was interested. Significantly, he would be willing to stay on at the brokerage until the change in ownership process was complete, and would be willing to assist new management with integration.

Result:
The buyer was able to absorb the Broker Dealer, complete with staff, clients, and network infrastructure, in a very short time. The former owner of the on-line Broker Dealer agreed to stay on until change of ownership was complete, and the Bank had hired and trained the requisite supervisory staff.
Interestingly, the parties reached an acceptable price almost immediately. The price did reflect a premium versus traditional valuations, but was less than the Bank was prepared to spend. For the Seller, the price was more than he had hoped for. And - his staff was absorbed in whole, and the platform began a new life, servicing the banks thousands of accounts. The seller did stay on, in order to facilitate integration into the new firm, and then afterwards as a consultant. He was able to devote much of his time to his other projects.