Fortress Biotech selling its majority stake in National Holdings

B. Riley Financial will own 49% of the shares of the broker-dealer, which has 700 independent reps and advisers

National Holdings Corp., home to about 700 independent registered reps and advisers, said Monday that B. Riley Financial is buying a 49% stake in the broker-dealer.

B. Riley Financial, which owns a variety of financial services businesses, bought 24% of National Holdings’ shares from Fortress Biotech Inc. on Friday. Fortress bought a 56% stake in the brokerage in 2016.

After approval by the Financial Industry Regulatory Authority Inc., B. Riley will purchase another 25% of stock from Fortress Biotech and eventually have a 49% interest in the company, executives said. Other investors are lined up to buy the remaining 7% stake from Fortress Biotech, company executives said.

Roughly seven million shares of National Holdings stock are to change hands at a price of $3.25 per share, for an aggregate purchase price of $22.9 million, according to the companies.

National Holdings has been culling its ranks of brokers with a history of problems, said chairman and CEO Michael Mullen, himself a former financial adviser.

“I’m excited. Riley got a great deal,” Mr. Mullen said in an interview Monday morning.

“In 2016, National had about $170 million in revenue and was losing money,” Mr. Mullen said. “The firm cut over 300 advisers … we felt did not fit in with the culture of the new National.”

For the nine months ended June 30, National Holdings posted $166.7 million in total revenues, 15.4% higher than the $144.5 million it reported in the same period a year ago, according to the company’s most recent quarterly report. It also posted a net loss of close to $9.5 million for the most recent nine-month period.

“We’ve grown revenues and are hopeful that having a true strategic shareholder like B. Riley helps us unlock value,” he said.

B. Riley Financial has about 180 advisers managing $9.8 billion in client assets across different businesses.

“Every investment we do starts with the entry price,” said Bryant Riley, chairman and co-CEO of B. Riley Financial. “We look at the enterprise value, meaning the market value minus cash, and the company is not being valued at very much. It’s a small-cap stock that doesn’t trade a lot, and we thought its value was compelling.

“And we also like Mike Mullen and the management team,” he said. “We think they’ve done a really good job in changing the culture at National.”