RBC Dain Rauscher Inc., part of the wealth management arm of Royal Bank of Canada, announced yesterday that it would buy New Jersey-based JB Hanauer & Co. for an undisclosed amount.
The deal would fold Hanauer, an employee-owned broker-dealer, into a financial services firm that has grown with the purchases of several smaller shops in recent years and has developed one of the busiest underwriting businesses for municipal bond sales smaller than $10 million.
The deal is set to close in May, pending the approval of U.S. and Canadian regulators and Hanauer’s shareholders, RBC officials said in a statement.
In 2006 alone, RBC snapped up Atlanta-based Flag Financial Corp., New York-based Carlin Financial Group, Denver-based Daniels & Co., and American Guaranty & Trust of Wilmington, Del., according to the RBC statement.
“Our strategy is to create a combination that we don’t think anybody else in the marketplace has, and that’s a small-firm feel linked to the global resources of Royal Bank of Canada,” said John Taft, chief executive officer of RBC Dain. Taft said he sold his own firm, Voyageur Asset Management Inc., to RBC Dain in 2000.
RBC Dain is an amalgamation of over 150 companies pieced together over the years, Taft said, adding that to maintain this strategy, RBC has to keep a consistent interest in new acquisitions.
“We have at any given time any number of conversations going on,” he said.
Discussions of an RBC-Hanauer merger started about a year ago, though talks became more serious during the fall, said Barry Zucker, Hanauer’s president and chief executive officer.
Zucker said that the company’s board of directors, of which he is also a member, agreed to the deal on Monday. Terms of the acquisition have been finalized, though neither firm would discuss them, saying that closely held Hanauer does not have to disclose the details and that RBC has not yet disclosed the information publicly.
Although Hanauer’s shareholders still have to approve the takeover, there is already enough shareholder support to ensure the deal will be approved, Zucker said.
“I think it’s a good mix — it makes sense,” said Jenny Stark, a Philadelphia-based trader at Janney, Montgomery, Scott LLC. “The JB Hanauer group will have access to a lot of new issues that they probably weren’t privy to at JB Hanauer. In fact, culturally, it probably makes a lot of sense.”
She added that, while she was not expecting this announcement, it does not come as a surprise in an industry that continues to consolidate.
“It’s not surprising, there have been a lot of acquisitions — a lot of mergers — over the last five years,” she said. “We merged with Parker/Hunter out in Pittsburgh a couple of years ago. I think it’s just the trend of the industry.”
The real question is whether RBC keeps the Hanauer business in tact, Stark added.
Hanauer, a full-service brokerage firm, has more than 300 employees in five offices located in Florida, New Jersey, and Pennsylvania. Its core business is in fixed-income securities and wealth management.
The firm was founded in 1931, and has $10 billion in assets under management, Zucker said.
Operations at Hanauer will be “status quo” for the next year, meaning that the firm will keep its name and no one will be laid off or shifted around during that time, Taft said.
“Our plan is not to change anything for at least the next year and to give us time for them to get to know us and us to get to know them and then make decisions that are the right decisions for the business,” he said. Taft gave a presentation yesterday to Hanauer employees in New Jersey.
RBC Dain is one of the nation’s largest full-service securities firms, the company said. RBC Capital Markets, a sister company that underwrites municipal bonds, has consistently been a top senior manager of small muni issues, according to Thomson Financial.
RBC Capital was the busiest underwriter of muni deals smaller than $10 million during each year since 1991. The firm ranked second in this category in 1990.
Last year, RBC managed 299 small-issue deals worth a combined $1.6 billion, Thomson data showed.
