Investors Cap Sale to Another Indie BD Appears Unlikely

Industry experts say Chairman Ted Charles' filing is not the 'usual' route for the future sale of an independent broker-dealer

Though Investors Capital Chairman Ted Charles has publicly filed to sell a 54.6% stake in the firm he founded, it is not likely that the independent broker-dealer will be sold to another IBD any time soon, experts say.

Charles (left), who started the firm in 1995, filed an S-3 form with the SEC to sell his shares in early March.

This filing, legal and other sources explain, is used for individuals to raise capital.  Such registration statements do not frequently kick-off a change in control from one business entity to another.

“Filing an S-3 is not the logical way to unload one’s independent broker-dealer,” said Chip Roame of Tiburon Strategic Advisors in an interview.

“More traditionally, such a deal would be shopped by investment bankers,” explained Roame. “Tiburon almost always is approached as part of an inquiry about Tiburon clients’ interests. We have not been approached on this one.”

Investors Capital, which has about 570 advisors, would not comment on the issue, noting that it was in a “quiet period” related to the registration. Its shares, trading under the ticker symbol ICH, were up 5.25% to $6 on Tuesday, when the overall markets were down 1.5%. 

Regarding speculation on possible suitors, experts say, LPL Financial (like other growing IBDs) does look at all its options, but the two independent broker-dealers may not make a perfect fit. LPL Financial is a self-clearing IBD, while Investors Cap relies on Pershing for its clearing operations.

“LPL Financial just went through the acquisition of the old Pacific Life BDs and eliminating Pershing,” Roame said. “That’s a lot of work. The obvious buyer of Investors Cap would be a larger Pershing-using IBD.

LPL Financial said in a statement that, “As a matter of policy, we do not comment on speculation regarding potential acquisitions.”

Experts point out that there’s also the possibility that Investors Cap FAs and management could move to purchase Charles’ stake in the IBD.

"The filing allows Ted Charles to have discussions with managers and others about the firm's future," said Joel Marks, chairman of First Allied Securities, in an interview. "I have no knowledge of what is happening. But if it were my firm, I would want to have such discussions and might move to consider buying [a stake in] the firm."

The filing does "put the company in play," Marks points out, creating some uncertainty in the process.

If Investors Capital management and/or advisors elect to buy Charles' shares, "Advisors who are happy with the firm will be relieved that they won't have to look elsewhere for a new home," pointed out Mark Elzweig, an executive search consultant, in an interview.

  

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