Great American Group Inc. has signed an agreement with West L.A. boutique investment bank B. Riley & Co. LLC to combine the companies and create a diversified financial services firm.
Great American, a publicly traded liquidation and inventory-lending company in Woodland Hills, will issue 4.2 million shares and exchange them for 100 percent of the stock of privately held B. Riley.
The two companies had total revenue of more than $102 million last year and an operating profit of about $13.5 million. Together, they will have about 250 employees.
B. Riley is a stock brokerage and investment bank that has expanded over the past few years, first with its 2012 acquisition of San Diego brokerage Caris & Co. and more recently with a push into asset management.
Bryant Riley, the founder and major stockholder in B. Riley and a member of the Great American board for the last five years, will become chief executive of the combined company. Great American co-founder and Chief Executive Andrew Guraer will continue to lead his side of business, which will operate separately.
However, the firms have more in common than at first glance. Great American made a name for itself during the recession, conducting high-profile asset auctions of failed retailers, such as Borders and Hollywood Video. But as that business slowed and the economy improved it has gotten into asset-backed lending.
“This transaction represents a transformative event for both our firms and will create a single, differentiated financial services group,” Riley said in a statement. “I believe the two companies complement each other and will create many opportunities for our respective businesses in the future.”
As part of the transaction, Great American will raise $51.4 million in a private placement to accredited investors, including the main stockholders and employees of B. Riley. The funds will be used to pay $48.8 million of existing debt owed to Guraer and Harvey Yellen, Great American’s other co-founder, at a 38-percent discounted rate of $30 million.
Great American also will execute a 20-to-1 reverse stock split to facilitate the private placement and to prepare for the company to possible list on a stock exchange. Great American went public in a reverse merger in 2009. Shares traded above $3 that year, but have since slid to as low as a penny over the past 12 months.
Shares had more than doubled in value to 30 cents in the last recorded over-the-counter trading on Tuesday afternoon.