Ladenburg Thalmann said that it planned to pay Ameriprise Financial $150 million in cash for Securities America in late August. In addition, the Miami-based broker-dealer says it will pay up to $70 million in 2012 and 2013 in so-called earn-outs, as the firm explained in an SEC report. Plus, Ameriprise continues to be responsible for any costs related to the sale of certain private-placements.
News has also been reported about the size of retention bonuses being offered to Securities America’s 1,700 advisors, who are led by Jim Nagengast. (Ladenburg Thalmann 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 percent of Securities America’s yearly revenue. “I see this as a large amount,” said Chip Roame of Tiburon Strategic Advisors in an interview. “That’s substantial.”
Others agree. “I thought the initial $150 million was a reasonable price (worked out to around 34 percent 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. “Ladenburg was wise to shield themselves from future liability of those particular products,” said Henschen.
“This is great for Ladenburg Thalmann,” shared Roame, “and it’s literally a perfect agreement. For Ameriprise, though, it’s risky. They know the claims they have on the table now, but maybe more claims will come. I am sure Ameriprise did lots of due diligence on this risk, though, and knows what might happen.”