LPL’s acquisition last week of three Pacific Life Insurance Company b/ds was just one more step in its quest for a successful sale of the company or an initial public offering.
The Pac Life deal will give the self-clearing LPL an additional 2,200 reps, bringing its total to about 9,900 financial advisors nationwide—the most among independent firms. “It’s clear that LPL is striding to become the dominant independent b/d in the nation,” says Mark Tibergien, principal at Seattle-based Moss Adams, an accountancy and consulting firm.
The acquisition isn’t the firm’s first, of course, and likely not its last, industry observers say. It’s got “bank.” In late 2005, LPL sold a 60 percent stake to two private equity firms, Hellman & Friedman and Texas Pacific Group, in deal that valued the b/d at $2.5 billion, or two times gross revenue. (Click here for more on that story.)
With a significant amount of capital on hand from the private equity deal, LPL has been making moves to achieve a level of “critical mass” via acquisitions. In August, it acquired UVEST Financial Services of Charlotte, N.C., and in December, LPL replaced Pershing as AXA Advisors’ clearing and back-office operations firm. As one industry consultant puts it, “LPL is doing a lot right now so it can go public as a company that’s more than just a b/d.”
The private equity firms need to get paid, of course, and will likely seek an IPO as a “liquidity event” later this year, consultants say. That explains LPL’s feverish race to expand. Just five months ago, in the November issue of Registered Rep., the firm reported that its rep count stood at 6,850 producing advisors. The Pac Life acquisition (including Mutual Service Corporation, Associated Financial Group and Waterstone Financial Group—which will continue to operate under the same management, brand and Pershing clearing and operational platforms) represents a 45 percent increase in the number of LPL reps.
Tibergien says the challenge will start in June, when the deal is scheduled to be completed, and Pacific Life’s reps attempt to adjust to the culture of the largest independent b/d in the industry. But he adds, “The terms of the pricing are probably based somewhat on performance tied to attrition of reps.” In other words, the final price will likely be based on the number and performance of Pacific Life reps that end up staying with the firm.
Mark Casady, CEO and chairman of LPL, said in a statement, “The acquisition of Mutual Service, Associated Financial and Waterstone Financial is a major cornerstone for our growth strategy in an industry where, increasingly, size and scale matters.
To read more about the latest deal, click here.