The parent company of the largest independent broker/dealer, LPL Financial, filed an S-1 statement with the SEC on June 4 to go public via an estimated $600 million stock offering, punctuating its rapid growth (notably its acquisition of three broker/dealers from Pacific Life in 2007), and its standout position within the independent broker/dealer universe nearly five years after the broker/dealer sold 60% of itself to two private equity firms.
At the time of that sale, which precipitated the departure of co-founder Todd Robinson and the ascendancy of current Chairman and CEO Mark Casady, LPL Financial’s advisor count was 6,800; the B/D had 11,950 affiliated representatives as of April 1, 2010, a self-reported number gathered as part of Investment Advisor’s annual independent broker/dealer survey (available at InvestmentAdvisor.com). According to its SEC filing, LPL has had a 14% growth rate in the number of reps since 2000, when it had just 3,570 advisors.
Philip Palaveev, president of Fusion Advisor Network and a leading authority on advisory practices, characterized the planned IPO as a major achievement for the entire independent broker/dealer business model. For one thing, he said, the IPO will put the largest indie B/D under the scrutiny of the public market. For another, it is a validation that an independent firm can grow to a size and market significance that allows them to go public. “To some degree, going public is recognition that you’ve grown large enough and your management practices are sound and solid enough to be scrutinized by the public market. I have to congratulate the management team that has built such a tremendous company. You have to admire the scope of the vision and how quickly they have been able to achieve that.”
Chip Roame, head of the consulting firm Tiburon Strategic Advisors, agrees. “This is a huge milestone for independent broker/dealers,” he said.
LPL’s IPO: The Financial Angle
“They are well positioned,” said Tim Murphy, CEO and President of Investors Capital, a publicly traded independent broker/dealer with about 550 advisors. “The independent channel is gaining ground, and they are the dominant player in the channel.”
Experts say that since its sale to the two PE firms in 2007, LPL Financial has very much been run like a public company. For instance, it has been filing K and Q statements. “They have been moving their business plan along during this time,” noted Murphy. “They integrated operations and became fully self clearing. They were smart in using this time to their advantage.”
Nearly five years ago, when LPL monetized its owners’ stakes by selling a majority interest to Hellman & Friedman LLC and TPG Capital, the deal valued the firm at $2.5 billion. Since then there have been a series of acquisitions and the aforementioned growth in reps to nearly 12,000. Plus the firm says it provides “support to over 4,000 additional financial advisors who are affiliated and licensed with insurance companies,” making it one of the largest distributors of investment and insurance products in the U.S. “Since 2000, we have grown our net revenues at a 15% compound annual growth rate (CAGR),” according to LPL’s preliminary prospectus.
Like a wirehouse, the firm’s distribution capability is immense, but unlike a wirehouse, the firm does no investment banking, “product manufacturing, underwriting or market making.” LPL states in its prospectus accompanying the S-1 filing that “revenue stems from diverse sources, including commission and advisory fees as well as fees from product manufacturers, recordkeeping and cash sweep balances.” With the kind of distribution the firm commands, revenues from manufacturers for product shelf space could be substantial.
In the filing, LPL lists debt at $1.4 billion. As of March 31 the firm’s debt-to-asset ratio for the quarter was 42%.
The company has moved to secure and lengthen the term of some of its debt to bring down its overall cost of debt–retiring $550 million in unsecured 10.75% debt due in 2015, and replacing it with a lower, variable rate senior tranche of $550 million due in 2017.
LPL’s IPO: The Recruiting Angle