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Portfolio > ETFs > Broad Market

LPL IPO: Trading Comes as Deals Flood the Market

By Joyce Hanson

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In the week that LPL Financial (LPLA-Nasdaq) has launched its initial public offering, the financial services IPO market has returned to a position of strength after passing through an unwelcoming summer period when many deals were withdrawn or put on hold.

Indeed, Nov. 2010 could represent the largest dollar value of new-issue equity capital raised in the United States in a single month.  LPL's deal is the 128th IPO to price so far this year, which is more than double the 63 IPOs completed for all of 2009, according to data provided by Renaissance Capital, Greenwich, Conn.

“Along with General Motors’ massive $15.8 billion common share offering also announced Wednesday evening, the U.S. IPO market has raised $17.9 billion so far in the month of November, more than doubling the $17 billion raised in the first 10 months of 2010,” Renaissance reported on its website.

Another six IPOs representing almost $1 billion of capital are set to price by week's end, including a $500 million proposed offering from Caesar's Entertainment and a $250 million offering from microelectronics maker Aeroflex.

The LPL deal’s lead underwriters on Wednesday night priced the IPO at $30 per share, at the high end of the original range of $27 to $30. A total of 15.7 million shares were sold, raising $468 million. Goldman, Sachs; Morgan Stanley; Bank of America-Merrill Lynch; and JPMorgan Chase acted as lead managers. LPL began trading on the Nasdaq on Thursday under the symbol LPLA.

Overall, 2010 has been a relatively good year for IPOs in the financial industry, with 21 deals totaling $3.9 billion year to date coming to market. Average first-day return was 8.4% and average total return was 6.0%.

Despite this activity, skeptics say that LPL’s timing was not ideal, and as typically risky IPOs go, it was indeed risky.

“We have decided not to buy LPL shares, and the reason is really simple: we are a shareholder of Schwab and we prefer the Schwab story,” said Tim Cunningham, associate portfolio manager with the Thornburg Core Growth and International Growth funds.

“They’re very similar and benefit from the same trends, the big one being a move from wirehouse brokerages to an independent model,” Cunningham said. “Both Schwab and LPL offer services to those independent advisors, so they’re both direct beneficiaries of that trend. You can see it in both companies, which had nice asset inflows, so they’re both getting client money. The big difference is that LPL is completely independent; they don’t offer any of their own funds and they don’t have a bank, whereas Schwab does.”

Beyond LPL’s own story, the firm came to market during a volatile week in the global markets.

“In general, their timing isn’t spectacular,” Cunningham said. “We’ve seen the market come down a lot in the last week. Investors have grown more cautious in that time. There have been big changes in the macro picture concerning investors. China announced [Wednesday] that they will introduce price controls, and there’s concern about Ireland. The EU would like to bail out Ireland, and Ireland is reluctant to accept help. It affects the general mode of the market. When people get cautious, they don’t like to take risks, and IPOs are definitely risky.”

Still, the IPO market has unquestionably picked up since this summer, when Fortune Bank shelved its $360 million IPO and a total of 11 filings in the finance sector were waiting to go to market. Those 11 filings were just a fraction of the total 168 IPOs that were stalled and waiting to be priced when market conditions improved.

At the end of the summer market freeze, Renaissance Capital principal Kathleen Smith said in an interview that the IPO tap would thaw in fall after the elections, when company executives felt more confident about where they were headed in terms of taxes, regulation and health care.

With this week’s flood of IPOs coming to market, 2010 is shaping up to be a boom year, especially compared to the last two years. Only 11 finance-sector IPOs priced in 2009 and an even lower three deals priced in 2008. In the last decade, financial IPOs peaked in 2004 when 42 deals went to market.

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