Goldman Sachs, which led the IPO, is now shopping its baby even as hedge funds swarm, Reuters says

October 11, 2016 — 8:58 PM UTC by Brooke Southall

3 Comments

LPL Financial appears to be very much for sale.

The Boston-based largest of independent broker-dealers called on Goldman Sachs to explore options that includes an outright sale, according to a Reuters report.

LPL shares surged about 7% Tuesday on the rumor to about $33. Goldman Sachs led the company's initial public offering in 2011. 

LPL and Goldman Sachs declined to comment to Reuters. A source close to or inside LPL told InvestmentNews that the Goldman Sachs hire was a reactive, i.e. legally compulsory, move to receiving an unsolicited buyout offer.

The IPO produced a price of about $33 and the shares have since gone sideways. LPL has been plagued by challenges related to its transactional business model as the business has shifted toward fee-based advice. Those challenges have mounted as the DOL has dictated heightened fiduciary care. See: What's behind LPL's decision to slash its ticket charges for advisors

Who will buy?

The wild card for LPL has been the heavy interest of hedge funds in owning its shares. Last year it was besieged by a "wolf pack" that had it disgorge all its cash in the form of share buybacks in December. The wolf pack, however, has not let go.  When LPL blew out its cash last year, CEO Mark Casady explained how the firm did not need such a heady hoard. 

Still, the Reuters report says that LPL may also be looking for a private equity investment. 

Observers have shown concern that financial concerns were wagging the LPL tail for years but its wage freeze this summer heightened those concerns.

Chip Roame, managing principal of Tiburon Strategic Advisors, said during an in-person interview at his Tiburon CEO Summit conference in San Francisco today, said that news of the sale is "not surprising."

Chip Roame: You get 14,000 advisors and not of the shlocky kind.
Chip Roame: You get 14,000 advisors and not of the schlocky kind.

 

He adds that there is no obvious buyer to cough up the $3 billion purchase price. High on the list might be Wells Fargo, owner of FiNet, which would like to grow in this area. Other buyers might be other wirehouses looking for an independent channel. "You get 14,000 advisors and not of the schlocky kind. These are mostly high quality." See: FiNet welcomes six wirehouse defectors at the apex of a withering Wells Fargo bank scandal that 'has legs'

Private equity possibility 

Wells Fargo said today that its CEO John Stumpf will be given diminished control of the company in the wake of a cross-selling scandal.

Other potential buyers would include Cetera Financial Group. Mass Mutual recently bought MetLife advisors -- along with their baggage, he adds. See: Sources: Larry Roth is out at Cetera, supplanted by ex-LPL president, Robert Moore

But don't discount the potential private equity appetite for LPL -- in spite of its challenges in a DOL era, Roame says. He points out that this class of investors has a knack for buying companies with challenged business models whose shares are depressed in price and boosting their value enough to make a substantial return.


Mentioned in this article:

LPL Financial
Asset Custodian
Top Executive: Bill Morrissey



Share your thoughts and opinions with the author or other readers.

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Dex Morris said:

October 11, 2016 — 9:54 PM UTC

LPL should have seen this coming long before the DOL ruling. Over the last few years, due to ineffective corporate positioning, numerous advisory professionals have been exploring opportunities of transitioning into the "truly" independent RIA space. Operational inefficiencies any organizational reluctance to see the obvious!
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Stephen Winks said:

October 12, 2016 — 1:46 PM UTC

Raymond James and Wells Fargo are the most logical buyers to compliment their well established independent brokerage franchises to balance their employee business model. With the exception of those two, the independent business model has serious challenges with fiduciary duty for their brokers as there is no unifying culture with every broker being an independent free agent with their own ideas of how to do business. If LPL creates the necessary support infrastructure for fiduciary standing of their brokers, will the broker use it. If not LPL still incurs fiduciary liability. The differences between the employee and independent models are blurring. More control and compliance are required for a fiduciary construct which will be perhaps too confining for independents with a mind of their own. Importantly, RIAs with limited capital resources and know how to create scalable prudent processes and technology necessary for professional standing in advisory services may become the primary focus for independent b/ds yet they are miles away from being close to supporting fiduciary duty. The fiduciary liability independents face from their brokers rendering advice as prudent experts surely will motivate good faith effort of the b/d, but the actual counsel rendered by thousands of free agent contractors will be a challenge. SCW
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Doug B said:

October 16, 2016 — 2:46 PM UTC

Wells Fargo - does not make sense. Wells Fargo could not manage 14,000 contractors. Each and every contractor would tell Wells to take a flying leap. Anyone who suggests Wells would be a great suitor does not know the independent business.

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