Cetera’s Durbin says IPO clock has yet to tick

Mike Durbin.

"Every private equity deal we have seen in the brokerage industry has lasted five to seven years," one executive said.

Industry veteran executive Mike Durbin has been at the helm of Cetera Holdings for almost one year, and while the retail wealth management marketplace widely expects an initial public offering and listing of the firm’s stock in five years, Durbin says no such exit plan is currently in place.

Cetera Holdings is the parent company of Cetera Financial Group, the giant broker-dealer and registered investment advisor network of at least five broker-dealers, 12,000 financial professionals, and combined assets of $665 billion. Cetera Holdings, which is owned by private equity manager Genstar Capital, appointed Dubin its chief executive last May.

Genstar made its initial investment in the firm in 2018. While the terms of the deal were not released, market speculation put Cetera’s value at $1.5 billion at the time.

Because Genstar at the end of last year recapitalized its investment in Cetera, it is in no hurry to have an IPO anytime soon, Durbin said in an interview this week in Manhattan.

Durbin, 56, noted that the institutional investor clients of Genstar that backed the Cetera acquisition in 2018 saw a “great return” in the deal at the end of last year. Two new Genstar funds bought Cetera from two older Genstar funds.

It’s standard for private equity managers to hold private companies for five to seven years; that’s when institutions like family offices or pension funds want to see returns.

In March, InvestmentNews reported that since Cetera’s recapitalization in December, the clock was ticking on an IPO, with a five-year time limit.

“I would say that’s not correct,” Durbin said in the interview. “We have the freshest, most durable capital. It’s a great time be private in this industry, given all the opportunities that are available. It’s better to be private than public right now. But Genstar won’t own it forever, because it’s a private equity sponsor.”

“I’m pleased to report the firm’s in fantastic shape right now,” he said. “We have 10 to 15 years of runway, if we need it.”

One industry executive was in disbelief that Genstar would hold onto Cetera for such a length of time.

“There is no way a private equity fund like Genstar would be locking up client money for 10 years,” said the executive, who asked to speak anonymously about Cetera. “Every private equity deal we have seen in the brokerage industry has lasted five to seven years. LPL Financial was acquired by two private equity managers in 2005 and had its IPO in 2010. That’s the goal.”

Before moving to Cetera Holdings, Durbin had been president of Fidelity Institutional, the division of Fidelity Investments that works with financial advisors and institutions, providing custody and clearing, third-party product and asset management services.

Cetera has three potential outcomes in its future, Durbin said. The network may be sold to other private equity sponsor, which happens in the wealth management industry; it may be sold to a strategic buyer, meaning competitor; or it can go public with an IPO.

“Those three options will always be out there, but we are not spending a second on that because we have fresh capital and a fresh five-year plan that we feel good about,” Durbin said.

And the furious rate of deal making in the broker-dealer and RIA industries is not about to slow down anytime soon, Durbin said.

“We’re in a consolidation wave, and I don’t see it abating near term,” he said. “It won’t go on forever. Macro conditions will change. But many of the names will come off the board.”