LONDON (ShareCast) - (Sharecast News) - Wealth management company Kingswood Holdings announced on Friday that, subject to US regulatory approval, it has agreed to acquire an 85% majority interest in Chalice Capital Partners, an independent broker and dealer, and Chalice Wealth Advisors, a registered investment advisor located in San Diego, California.
The AIM-traded firm said the total consideration was $4m (£3.1m), with an initial $1m payable on completion of the acquisition in the form of a promissory note, secured by the assets of Chalice, and the balance payable on a deferred basis subject to regulatory approval from FINRA and Chalice meeting pre-agreed asset migration, revenue, and EBITDA hurdles.

It said the consideration represented a 6x multiple based on Chalice's projected 2019 financial year EBITDA.

The 15% remaining interest in CCP and CWA would be retained by senior management.

To meet the initial payment and associated expenses, Kingswood would issue a total of 900,000 convertible preference shares under the terms of the convertible preference share subscription agreement it announced on 12 September, to HSQ Investment - a wholly-owned indirect subsidiary of funds managed or advised by Pollen Street Capital.

The new preference shares represented the second tranche of convertible preference shares issued under the Pollen Street subscription agreement, and as such the total number of convertible preference shares held by Pollen Street was 5,727,655.

Chalice had experienced "robust" growth in the two years it had been operating, Kingswood explained, with positive EBITDA and cash flow expected in the 2019 financial year.

In the most recent financial year to 31 December, Chalice generated a small EBITDA loss of $0.3m.

Brokerage and fee-based assets under management had reached $1.15bn, and the combined platform had 104 licensed representatives.

Formed in 2017, the principals of the firm were Keith Gregg and Derek Bruton.

Bruton oversaw the independent channel business for the largest independent broker and dealer in the United States, LPL Financial, adding more than $1bn in gross revenue to the firm during his leadership.

He would be the chief executive officer of the acquired businesses going forward.

Kingswood said the two Chalice businesses were run on a lean centralised platform, without large existing and expensive operational infrastructure.

They were described as "well-positioned" to add fixed and variable expenses as the business expanded, and could closely manage profitability and cash flow growth.

Kingswood planned to use the two acquisitions as one of its centralised hubs, providing a platform for future acquisitions and product offerings in the United States.

"We're delighted to announce our second acquisition in the US, following on from Manhattan Harbor earlier this year," said chief executive officer Gary Wilder.

"The advantages of this new west coast hub are that it is immediately earnings accretive with a strong management team that has significant experience in roll-up and consolidation strategies."

Wilder said Bruton's experience and understanding of how to scale a business and source and manage superior talent would be "instrumental" to the acquisition's success.

"The acquisition complements the group's strategy of seeking new distribution channels for its expanding products."

Kingswood said it would further focus its attention on acquisition targets with revenues in the $5m-to-$50m range, which it described was a submarket in which its "capital strength and international narrative" would create a differentiated, competitive presence.

At 1152 GMT, shares in Kingswood Holdings were down 1.69% at 20.35p.

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