In addition to the $150 million in cash Ladenburg Thalmann said Wednesday that it planned to pay Ameriprise Financial for Securities America, the Miami-based broker-dealer says it will pay up to $70 million in 2012 and 2013 in so-called earn-outs, the firm explained in an SEC report filed Thursday. Plus, Ameriprise (AMP) continues to be responsible for any costs related to the sale of certain private-placements.
News is also emerging about the size of retention bonuses being offered to Securities America’s 1,700 advisors, which experts say, amounts to about 15% of an FA’s yearly fees and commissions. (Ladenburg Thalmann (LTS) says it cannot comment on matters other than what is said in the 8-K filing.)
As for the additional $70 million being promised to Ameriprise, this amount is generous, several sources say, as it pushes the total price tag to about 50% of Securities America’s yearly revenue.
“I see this as a large amount,” said Chip Roame (left) of Tiburon Strategic Advisors in an interview with AdvisorOne. “That’s substantial.”
Others agree. “I thought the initial $150 million was a reasonable price (worked out to around 34% of trailing revenue), but any more for a firm with their history etc., would be more than I feel is reasonable,” said Jon Henschen of Henschen & Associates in an interview.
While Henschen says that adding another $70 million is “overly generous, it also depends on what kind of production hurdles they’ve set [for the earn-outs], and if they are realistic. Ameriprise may see little if any of that $70 million,” the recruiter explained.
Overall, says Roame, the arrangement seems to be “a fair price range,” with a caveat. “The price is low if Securities America has rep attrition and cannot get the kicker. The price is average to high, if they keep their reps. It seems like a fair deal all around.”
In its recent filing, Ladenburg Thalmann explained, “Ameriprise has agreed that, following closing of the transaction, it will indemnify Ladenburg for …any and all losses arising out of substantially all claims pending …” This clause includes claims related to the sale of certain securities issued by Provident Royalties and Medical Capital Holdings, which prompted Ameriprise to take a $77 million charge in the first quarter and put Securities America up for sale.
These provisions are earning the acquiring firm praise. “Landenburg was wise to shield themselves from future liability of those particular products,” said Henschen.