But equity analysts, such as Steven Chubak of Nomura Securities, said Wednesday that LPL “comes with too much baggage” for a publicly traded company to consider buying the largest IBD.
Then came a report in Investment News that there had been an unsolicited bid for the independent broker-dealer.
“As a matter of policy, LPL does not comment on rumors or speculation,” LPL said in a statement.
A possible suitor, though, has stepped forward: Former registered rep Joseph Nodarse, head of Hudson, Riley Asset Counsel, who says the issues confronting LPL make it ripe for a deal. Industry-watchers, however, are not optimistic such a plan would come to fruition; this hasn’t stopped Nodarse.
“We are exploring a possible acquisition by working with a private-equity firm [or other partner] … and a law firm in Boston,” said Nodarse, in an interview Thursday from the Cayman Islands. “We are interested in buying the healthy parts of the firm.”
Hudson, Riley—which works as a consultant to institutional investors and pension plans—does not want to buy any of the broker-dealer’s operations affected by the new Department of Labor fiduciary standard.
“We would like to take over the part of firm that does not have to be involved with the DOL matters,” he said. “LPL has a separately managed account [business] and other wealth-management programs with LLC ownership,” which his firm is targeting.
(Year to date, the IBD’s stock is down about 27.5% vs. a gain of about 4.6% in the S&P 500.)
“We have no interest in the retail business but are interested in the targeted programs … that focus on qualified qualified investors, foundations and endowments,” Nodarse said. “We are thinking to turn that into a family-office business.”
While LPL has a market valuation of about $3 billion, he would like to see his firm offer $750 million or so for about 25 branch offices.
“We would do interviews and target individuals responsible for the biggest accounts within company and would pay them if they can retain certain amounts of the [SMA] business,” he added.
Skepticism Over Nodarse’s Bid
Would LPL be open to such an offer?
“A buyer cannot just buy parts of it,” said Tim Welsh, president of Larkspur, California-based Nexus Strategy. “There are shareholders involved, so it cannot be sold in pieces. Plus, why would LPL let go of its profitable asset-management team? It’s highly unlikely that LPL would break up its operations and sell them off.”
While Welsh agrees that LPL’s fee-based SMA business is more attractive than its commission-based counterparts, “It wouldn’t make sense for LPL to just sell off the SMA operations, and the shareholders would not go for it.”
Nodarse, who revealed his firm’s interest in acquired the independent broker-dealer on Twitter on Wednesday, says that Hudson, Riley Asset Counsel is a pension-fund advisory and third-party marketing firm that has done “a number of M&As involving asset managers.” It also has worked with Tradex Global Advisors, a fund of hedge funds manager, he said.
“We are a pure institutional firm, and that is a lot easier to control in terms of assets under management and the client base” than a retail-focused firm, explained Nodarse. “We have raised in excess of $8 billion since 1991.”
Hudson, Riley Asset Counsel has offices in Greenwich, Connecticut, and London. It is partly owned by Len Chaikind, the former administrator of Royal Dutch Shell’s pension plans and current chairman and CEO of Institutional Investors Consulting Company of Houston.
“It is very much a distressed … situation for us—a possible turnaround,” Nodarse said of LPL.
The executive went into the brokerage business himself in the late-’80s, according to FINRA BrokerCheck. But when a client failed to pay him for an order of over $200,000, Nodarse says “I decided I wanted no part of retail and wanted to leave the industry.”
Nordase was censured and fined $1,000 by regulators for not responding to a request for information. He then chose not to retake his securities exam nor to pay the required costs ($1,157). His broker license was revoked in February 1992.
Over the past 25 years, he has worked for Institutional Investors Consulting Company, Dahab Associates and London & Capital.
“My partners and I see the [LPL market valuation] number is high, and that it is a great opportunity to turn the company around and put the right executives in place. We are considering going through a private-equity firm to [acquire it] and then clean it up,” Nodarse said.
As Goldman Sachs continues to reach out to possible suitors for LPL, “We see it as, not as imperative, but as a potential opportunity, if we can get it at the right price and the right circumstances …,” he added. “It will be interesting to see where this road takes us.”
More broadly, the only feasible entity that could buy all of LPL is a private-equity firm or group of PE firms, Welsh says, and they would need a substantial amount of capital. “They would take LPL private, do some engineering, cut costs, rationalize its operations and then put it back in the public market,” he explained.
There are many unknowns facing LPL, he adds. “For instance, we do not know if it will face DOL class-action lawsuits in the future,” he said
“A foreign bank could also try and buy it, if it wants a foothold in U.S. wealth management. But who knows what risks and uncertainties are involved in such a deal,” Welsh said.
“There are very few [possible] buyers. And if there are any, they are really likely to be on the private-equity side, since they can do the engineering [i.e., restructuring work] on the back end,” he added.
Another issue working against an LPL sale at this time, Welsh points out, is that is being sued by shareholders due to the high price it paid to buy back shares from its private-equity stakeholders. Its shares now trade around $30.
“There are very few [possible] buyers and … all of this talk of a sale just could be a rumor,” he said.
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