With its acquisition of San Diego stock brokerage Caris & Co. last week, West L.A. investment bank B. Riley & Co. has ventured further into territory from which others are retreating.
The pickup adds about 25 employees to B. Riley’s sales, research and trading desks – at a time when demand for such services from smaller firms is waning. Several boutique stock brokerages have shuttered this year, including San Francisco’s ThinkEquity LLC and New York’s WJB Capital Group.
B. Riley’s move, which boosts the firm’s head count to 97, is not the first time it has scooped up talent in those struggling areas of business. Last year, the firm hired about 10 analysts and salespeople jettisoned from San Francisco’s Merriman Capital Inc. after Merriman decided to cut back on research for institutional investors due to poor demand.
“You’ve seen a lot of firms struggle,” said Chairman Bryant Riley. “We think it’s a great opportunity for us.”
Despite being founded as a stock trading firm in 1997, B. Riley today makes its largest chunk of revenue on helping companies raise money in the capital markets and advising on mergers and acquisitions. It got into investment banking after acquiring Irvine boutique bank Friend & Co. in 2003.
Driven by such business, the firm has had a strong year, Riley said, with overall revenue up 28.5 percent so far year over year. In May, B. Riley acted as sole underwriter in a $100 million stock offering for San Diego’s Kratos Defense & Security Solutions Inc.
However, the firm’s revenue from sales and trading are down 6 percent this year. Declining commissions, low stock trading activity and the rise of computerized stock trading have made times tough for many stock brokerages. In addition to ThinkEquity and WJB Capital, New York firms Ticonderoga Securities and Rodman & Renshaw also closed this year.
Despite that, B. Riley is building out that side of the business with the Caris move, adding researchers and salespeople specializing in technology and consumer companies. For Riley, the move is a bet that stock trading is going to start increasing, which would benefit his firm due to the reduction in competitors handling such business.
“There are fewer companies out there precisely when equities are coming more into favor,” he said.
Riley’s customers mostly are institutional investors, including some hedge funds, although it does have some individual retail clients.
The terms of the deal with Caris were not disclosed. The acquisition will expand B. Riley’s New York, San Francisco and Boston offices, while giving it a presence in new markets such as Atlanta.
Caris’ founder, Darren Caris, will come on as director of capital markets, overseeing the firm’s research, sales and trading.
Caris said that he began looking at partnering with another firm about 18 months ago when stock trading business began softening industrywide, choosing B. Riley out of about 15 potential acquirers.
“Critical mass is now much more important than it was in the past. Three or four years ago, you could be a 15-person boutique and have a decent level of success,” he said. “What we can now be is a viable alternative to the larger investment banks.”
