Invest FinancialCorp., already a leading provider of investment products through banks, is preparing to acquire two competitors in a bid to become the dominant player in its field.
Merlin Gackle, Invest's chairman, said he plans to announce the acquisitions within a month. Though Mr. Gackle wouldn't disclose the names of the firms, he said the purchases would roughly double Invest's client list.
"After I do these acquisitions, we won't have any more material competitors in the full-service brokerage area," Mr. Gackle declared in a telephone interview.
Currently, Invest ranks third in its field, with 241 clients, behind Essex Corp., with 256, and Investment Centers of America, with 245. Invest's customers include California Federal Bank, Long Island Savings Bank, and West One Bancorp.
Invest's plan to expand is part of a consolidation wave among companies that supply investment services to banks. Most recently, Liberty Financial Cos. beefed up its bank investment services arm, Liberty Financial Bank Group, by purchasing the banking group of rival Wall Street Investor Services.
Firms like Invest, known as third-party marketers, have sprouted up over the past decade to help banks break into investment sales. But as banks have matured in their command of the business, many have struck out on their own, putting pressure on third-party marketers to find new ways to grow.
Many third-party marketing executives have concluded that the only way to build a business is through acquisitions.
"I am pretty well convinced that there is going to be a major consolidation of the third-party marketing industry in the coming months," said Richard Ayotte, president of American Brokerage Consultants, a St. Petersburg, Fla., firm that is advising Invest on the acquisitions.
Invest has been talking about buying rivals since spring, when its parent company, Kemper Corp., was acquired by a consortium of investors led by a Swiss insurer. With roughly $10 billion in capital, the main investor, Zurich Insurance Group, is said to be in a strong position to expand Invest.
Mr. Ayotte would not reveal the details of his search on behalf of Invest, but an industry source said Mr. Ayotte called about 70 firms, and found that 15 to 20 wanted to sell out and about six were willing to form joint ventures.
A rival executive said he is not worried about Invest's expansion plans. "Merlin hasn't proved to me yet he can operate a small-town bank program," said Thomas Gunderson, chief executive of Investment Centers of America.
The desire for new bank clients isn't the only thing spurring marketing firms to hit the acquisition trail. Some companies have developed technology for serving customers and managing accounts that their rivals crave. Others have developed fresh ways of managing relationships.
Liberty Financial Bank Group, for instance, "acquired an ability to reposition itself in the marketplace" when it bought Wall Street Investor Services in June, said Eric Alexander, a managing director of Wall Street Investor.
Whereas Liberty focused on "managed accounts" in which it operated the sales programs soup to nuts, Wall Street Investor had concentrated on "dual employee" programs, which give banks more direct control over their brokers, said Mr. Alexander. And banks have come to favor the latter approach.
Still, acquiring marketing firms can be troublesome, because their primary value is their roster of clients, which often jump ship during a corporate takeover.
"If you're smart, you need to get consents from the bank clients that they won't leave. That needs to be worked out individually," said Kenneth Liebler, chief executive officer of Liberty Financial Cos., parent of Liberty Financial Banking Group.
But some in the industry said the risks that banking clients will leave makes it hard to price acquisitions.
"What in God's name are you buying? You're only purchasing" the possibility of gaining new business, said Brewster Ellis, president of Robert Thomas Securities, St. Petersburg, Fla.
- John Kimelman contributed to this report.
