Lightyear to make 4x its money with Advisor Group sale

After a three-year hold, Lightyear Capital stands to quadruple its investment with the sale of Advisor Group, a source said.

Reverence Capital Partners said May 9 that it was buying a majority of Advisor Group. Terms weren’t disclosed, but a second person said the deal was valued at more than $2 billion.

Reverence will have 75 percent of the company while Lightyear Capital and PSP Investments, the sellers, will own 25 percent.

Advisor Group is a wealth-management platform supporting over 7,000 financial advisers. The Phoenix company is made up of four broker-dealers: FSC Securities, Royal Alliance Associates, SagePoint Financial and Woodbury Financial Services. The group has $268 billion of client assets under administration, a statement said. It produced about $120 million of Ebitda as of June 30, Moody’s said.

Lightyear acquired Advisor Group in 2016 from AIG for $400 million, according to press reports. The investment came from its third fund, which closed on $950 million in 2012.

Lightyear bought Advisor Group using all equity, the first source said. Once the firm closed the acquisition, Lightyear leveraged the company and used a dividend to pay itself part of the capital, the person said. Advisor Group in 2016 had $157 billion in client assets and 5,200 financial advisers.

The New York PE firm got more of its money back in August when Advisor Group issued a second dividend: a $394 million distribution, LevFin Insights reported.

Lightyear hired Barclays in 2018 to sell the company, the first person said. Genstar Capital was in talks this year, roughly January, to buy Advisor Group, but the transaction “didn’t really work out,” the first person said.

In the current process, Centerbridge Partners was considered the lead bidder, sources told Buyouts. The firm had been expected to win the Advisor Group auction, people said.

Reverence Capital, led by Milton Berlinski, ended up buying Advisor Group because it was the first to clinch “price, speed and certainty,” the source said.

Buyers in an auction process often have several issues to work out, including diligence, negotiating the contract, negotiating with the company, as well as financing the deal. Centerbridge needed more time, the person said. “Reverence really distinguished themselves by the speed they were moving,” the first person said.

“Reverence ran fast and was willing to pay more,” a third source said.

With the sale to Reverence, Lightyear expects to make 4x its money, the first person said.

The deal is the latest for Reverence, a financial-services-focused PE firm that closed its $1 billion Fund II earlier this year.

Reverence has become more focused on buying control of companies on its own since it raised the pool, Buyouts has reported. The New York PE firm in March won the auction for Cashnet, the payments company owned by Blackboard. Reverence was part of a group, including Apollo Global Management and Crestview Partners, that last year bought the annuities business of Voya Financial.

Lightyear also focuses on financial services. The PE firm invests in payments, insurance and brokerages as well as asset and wealth management. In November, Lightyear’s fourth flagship weighed in at more than $957 million, Buyouts said.

Joel Fleck and Tom Vandever of Barclays provided financial advice to Advisor Group, while Simpson Thacher was legal counsel.

Mark Fennell, Kevin Mausert and Maggie Flores of Kirkland & Ellis advised Reverence. Douglas Warner of Weil, Gotshal & Manges was attorney for PSP.

Lightyear, Barclays and Reverence declined comment. Advisor Group and PSP could not be reached for comment.

Action Item: For more information on Advisor Group’s second dividend, see the 2018 Moody’s report here.