Montana-based brokerage D.A. Davidson & Co plans to acquire smaller Los Angeles-based rival Crowell, Weedon & Co in a deal that would create one of the largest regional brokerage firms on the West Coast, with $43.5 billion in client assets under management.
Crowell, which has about $9 billion in assets under management, will keep its name and operate as a division within Davidson.
"We believe that, financially, year in and year out, we'll have better opportunities for return on investment" through the acquisition, Davidson President Jim Kerr said in an interview on Thursday. "This is an opportunity ... to grow and achieve higher scale."
The terms of the deal, announced to the firm's employees on Wednesday, were not disclosed. Both Davidson and Crowell are privately owned and all of Crowell's partners will become shareholders of Davidson.
The acquisition will expand D.A. Davidson's adviser footprint into California, where Crowell has 14 branch offices. The combined company will have 465 financial advisers, with roughly two-thirds coming from D.A. Davidson.
Kerr said the firms plan to merge their back offices, but have no plans to close any existing branches.
"We have work to do on the overlap and are figuring out all of the details of that," Kerr said, noting that he expects the firms to be fully merged by the end of 2013.
Andrew Crowell, the firm's president and chief executive, will manage the division and report to Kerr. Crowell said the two firms had been talking over the past couple of years about bringing their operations together.
"We had known each other for decades from a distance and then more closely for half a dozen years, and more intimately in the past couple of years," he said in an interview.
MORE FIRMS MERGING
The merging and acquisition of brokerage firms across the industry has picked up in recent years, industry experts say. On a large scale, Morgan Stanley (MS.N) and Citigroup Inc (C.N) merged their wealth units in 2009 to create the biggest U.S. brokerage by client assets and adviser headcount.
But especially among smaller firms, the opportunity to gain scale by combining with bigger brokerage firms has been attractive, if not necessary.
"It's becoming more of a common situation" to have smaller regional firms merge or becoming acquired by a larger brokerage, said San Diego-based financial services recruiter Ron Edde.
"Margins are getting thinner and there is additional pressure," he said, noting that some firms also see it as an opportunity to gain greater name recognition in a region.
The result has been consolidation in the industry.
The Financial Industry Regulatory Authority, Wall Street's self-regulator, said it had 4,268 member firms as of March 2013, down roughly 13 percent from 2008, when FINRA had nearly 5,000.
D.A. Davidson, based in Great Falls, Montana, also has offices in Denver, Seattle and Portland, Oregon.
Kerr said he sees the potential for further acquisitions down the road, but does not have any concrete plans as of now.
"We're opportunistic, so we're always looking for other opportunities," Kerr said. "When that happens, we can't predict ... A lot of firms have been absorbed in this business."
The Crowell transaction is expected to close by July 1.
(Reporting by Ashley Lau in New York; Additional reporting by Jed Horowitz; Editing by Linda Stern and Andre Grenon)