LPL Financial announced the much-anticipated purchase of National Planning Holdings, an affiliate of Jackson National Life, and its four broker-dealers late Tuesday.
Early Wednesday, CEO and President Dan Arnold and CFO Matt Audette spoke with equity analysts about the news and highlighted details of what could be a profitable but also highly complex merger.
Here are some of the issues raised during the discussion, with input from some analysts on the call and insights from outside industry sources, pointing to potential benefits and pitfalls of the transaction.
The Price Tag
At $325 million initially and with a possible contingency payment of up to $123 million, Arnold says the independent broker-dealer is paying “a price that is attractive to us.”
Plus, the deal was structured “as an asset purchase,” Arnold said, rather than a traditional M&A that might typically include operations.
Industry observers agree.
“The price seems both reasonable and tied to success in moving the financial advisors, their assets and their revenues,” said Chip Roame, head of Tiburon Strategic Advisors, in an interview.
“Somewhere between $325 million and $448 million seems very reasonable. I doubt that there were many other legitimate bidders,” Roame explained.
William Blair analysts Chris Shutler and Andrew Nicholas said in a note: “It is hard not to like the financial implications of this deal, given [the] reasonable purchase price of about five times post-synergy EBITDA, and up to 16% EPS accretion on top of our existing 2018 estimate of $3.36, excluding amortization of acquired intangibles.”
And Steven Chubak of Nomura Instinet explained in a report, “The purchase price … was much lower than we (and most investors) expected and was arguably the biggest surprise from the announcement.”
The NPH advisors will be moved onto LPL’s platform in “two onboarding waves” by March 30, 2018.
According to LPL executives, that will entail costs of between $40 million and $60 million in account-transfer fees, clearing expenses, technology expenses and the like.