LPL Sells Majority of Firm to Private Equity Groups

Financial planning not only for people; firms do it too

In a move that allows the founders to diversify their holdings and appraises one of the largest U.S. independent broker/dealers at $2.5 billion, Linsco/Private Ledger (LPL Financial Services) is selling a majority equity interest in the company, about 60%, to two private equity shops. Hellman & Friedman LLC, and Texas Pacific Group (TPG) will share equally in the majority stake, with the deal slated to close by the end of the year.

"It is a very elegant solution to [issues regarding] both succession and liquidity for financial planning reasons, says Mark Casady, president and CEO of Boston and San Diego-based LPL. "Much like our advisors, our founders have really all of their assets in the company's stock, and this allows us to give them diversification by having the private equity investors step into their shoes, so to speak. Each of the three founders who are receiving some cash in this deal will also continue to be shareholders in the company. In fact, Todd Robinson was the largest individual shareholder before this transaction and he'll be the largest individual shareholder after the transaction, so it's not a complete cash-out by any means." The move will also help LPL "institutionalize" the firm, according to Casady, taking it "from individual ownership to corporate ownership. What was an entrepreneurially, individually-owned company has become a bit more corporate in the last few years. This transaction lets us preserve what's best about our culture and our way of life for our clients, the advisors and the employees."

San Francisco-based Hellman & Friedman invests in financial services and other industries. Among the firm's financial holdings is a stake in the Nasdaq Stock Market, and through Nasdaq, Instinet's ECN (electronic communication network). Former NASD Chairman Frank Zarb is a Hellman & Friedman senior advisor and managing director.

TPG is based in San Francisco, London, and Fort Worth, Texas. The firm invests in several industries and among its financial services holdings is a stake in SunGard Data Systems, Inc.

The new structure of the company allows each equity partner to have two board members, according to Casady, and "the board will total seven people. [Co-founder and Vice-Chairman] Jim Putnam and I are on the board, [with] two each from the private equity firms. An independent director will join sometime around the close." LPL founder and current Chairman Todd Robinson will become chairman emeritus after the deal closes, and Casady will then become chairman. Dave Butterfield, co-founder and vice-chairman is retiring. Esther Stearns remains COO.

"Our belief is that the company is best served by ultimately being public. We'd like to do that in a very managed way. The best way to do that is to have good, long-term capital in the form of these private equity investors with us for many, many years, and take the company public slowly," says Casady. The company is about equally represented in fee-based and commission-based business, serving the "mass affluent" marketplace, where investors have anywhere from $50,000 to several million dollars to invest. "We think the independent model is the best model for a consumer because our advisors get to provide unbiased financial advice. To my mind this transaction validates that it's the best model, so we're just thrilled with that aspect of it."

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