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Thursday, Mar 28, 2024

B. Riley to Purchase East Coast Investment Bank

Financial services company B. Riley Financial Inc. is ready to acquire East Coast brokerage FBR & Co. for $160 million in a deal that will create a national small-capitalization investment bank and brokerage firm with 600 companies under research coverage. Per the agreement, FBR shareholders will receive 0.671 share of B. Riley stock as well as an anticipated pre-closing cash dividend of $8.50 a share. FBR will pay a minimum of $33.5 million to B. Riley at closing, which is expected before June. “This merger with FBR represents a great strategic and cultural fit for B. Riley with strong franchises in areas complementary to our existing businesses,” Chief Executive Bryant Riley said in a statement. “The combined firm will enjoy an increased capital base as well as meaningful revenue and expense synergies.” The new investment banking and brokerage business will retain the FBR name and brand and become a subsidiary of Woodland Hills-based B. Riley Financial. Both companies have over 200 employees each and currently have no layoff plans in relation to the merger. Richard Hendrix, current chief executive of FBR, headquartered in Arlington, Va., will serve as chief executive of the combined entity. A huge draw to the deal is the fact that the firms have limited overlap in client base, research coverage and capital-raising activities. Each has a concentration of customers in their respective geographic regions, while the combined company will have locations throughout the United States, including offices in Los Angeles, New York, San Francisco and Dallas. In addition, B. Riley is more researched-focused, while FBR is better established on the equity-transaction side, allowing the companies to have offerings throughout a company’s life cycle, from formation capital through initial public offering. However, less companies are going public these days. Last year was the weakest IPO year since 2013, according to EY’s Global IPO Trends: 2016 Q4 report. Initial public offerings in 2016 fell 16 percent year-over-year, and capital raised was down 33 percent. Yet with the Trump Administration now in office, Karim Anani, a partner in EY’s financial accounting advisory services practice, said the market is starting to see an uptick. “There’s a lot of pent-up demand for IPOs in 2017,” he said. “There should be some rebound, but the question is, how big of a rebound?” If Trump deregulates the industry as promised and more companies move from private to public, this could mean big business for B. Riley’s new subsidiary that specializes in the below $2 billion capitalization market. In fact, Lloyd Greif, chief executive of L.A. investment bank Greif & Co., said if the combined company proves successful, it could become an acquisition target itself. “This could be a very insightful, strategic move by Bryant (Riley) to position the firm for the next four years under Trump,” he said. As of press date, B. Riley released preliminary 2016 full-year financial results with revenue ranging between $190 and $192 million and net income of approximately $21.6 million. FBR had a pre-tax operating loss of $27.8 million on $98.3 million of revenue in 2016.

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