LPL Financial announced plans Tuesday to acquire Atria Wealth Solutions, an independent broker/dealer network with about $100 billion, roughly 2,400 advisors and 150 banks and credit unions. Industry and equity analysts said the deal reinforces the necessity and power of scale in the wealth management industry.
Steven Chubak, an analyst at Wolfe Research, said Atria’s enterprise business, which includes two b/ds focusing on banks and credit unions (CUSO Financial Services and Sorrento Pacific Financial), was a significant competitor for LPL. He said the addition of Atria will turn LPL into a “category killer” and widen its competitive moat in the enterprise space.
“LPL had already become the dominant player by headcount and AUM in the independent channel,” said Scott Smith, director of advice relationships at Cerulli Associates. “But they’re adding to it, and I think it underscores the role of technology. If you can get more advisors working off the same plumbing, and more money into improving that plumbing and making it work better for everybody, having all the systems behind it is what’s really important.”
For advisors, that additional scale may mean they’re the same size fish in a bigger pond, Smith said. But a lot of independent advisors are not necessarily looking for the same level of support that an employee advisor might want.
“If you’re moving to LPL with a book with $100 million, you know what you’re doing for the most part,” Smith said. “The coaching opportunities are there; the business development opportunities are there if you’re looking for them, but what we found is that plenty of advisors who are moving to independent broker/dealers are doing so to be independent. They don’t want people messing with their business. They just want to make sure they’re operating in a compliant fashion, they have all the systems they need, and they’re strong systems. But they’re not looking for all that much coaching for how to run their business.”
Devin Ryan, an analyst with JMP Securities, called the deal a “bread and butter ‘scale’ transaction with compelling financial attributes.” He says the transaction will bring financial benefits to LPL at a reasonable price.
The deal has an upfront price of $805 million and is structured as an equity purchase, with LPL expecting to finance it through a mix of cash and debt, according to supplementary materials LPL released. The deal's onboarding and integration costs are estimated between $300 and $350 million. Atria's asset mix at the time of the deal was approximately 20% advisory and 80% brokerage, with client cash sweep balances of about $2.5 billion.
“We view the economics of the transaction favorably and believe LPL’s ability to pay is quite competitive relative to many in the industry. Specifically, we believe LPL can separate itself both around retention and through deal synergies with its scale and value proposition coupled with the economics as a self-clearing firm, strengthening its position as a ‘buyer.’ We have seen a number of recent acquisitions in the space price at EBITDA multiples well into the teens, and thus, feel quite comfortable with the transaction terms here (falling within management’s targeted range of ~6-8x).”
Alois Pirker, founder and CEO of Pirker Partners, said that while scale can make things a lot easier, it can also make it harder to maneuver. But both LPL and Atria have consolidated, and Atria came to market with the lessons they had observed from LPL.
In addition, LPL has become almost a broad representation of the industry, with its different business models, such as its employee, independent, third-party marketing and bank channels. This acquisition beefs up the firm’s business channels.
“You see [LPL] being extremely industrious in the way they deliver up their platform to the market,” Pirker said. “You have to think about LPL as a service deck that can be consumed in different levels of depth.”
“As the industry continues to evolve, you see that there is continuing consolidation, and there is a scale requirement for folks to be able to invest,” said Rich Steinmeier, managing director and divisional president, business development at LPL. “And for us, we happen to be one of the scale players, and we keep a very sharp lookout for cultural matches, for matches that fit our business mix. At the top of that list for a long time has been Atria.”
Steinmeier said Atria’s leadership team, which includes CEO Doug Ketterer, COO Eugene Elias Jr., Chief Growth Officer Kevin Beard and Head of the Independent Channel Bill Morrissey, will continue to run the business in the short term. In the long term, they will be offered positions inside LPL. Atria will operate as a standalone company until the first quarter 2025, when it will be integrated into LPL’s businesses.
He said there will be no repapering involved, as it will be a tape-to-tape transfer for the brokerage and advisory assets at Atria. There may be rare instances where the firm will have to get clients to sign paperwork. The firm will offer “varying amounts of transition assistance” based on an individual advisor’s practice.
“The lift and load for an advisor who is moving into the LPL ecosystem from Atria will be 90% less than if they were to choose to go to a firm outside of LPL or Atria,” Steinmeier said.
Cerulli’s Smith said there will be some advisor defections but expects 90% to 95% of the assets to transfer, given the size of LPL’s plumbing.
“When you have 20,000-plus advisors relying on a set of plumbing, you’re going to make sure that plumbing is working on a regular basis. If you have a firm that’s running 300-400 advisors on a white label off of one of the custodial platforms, you can get blips along the road there that don’t get fixed immediately,” he said.
S&P Global Ratings issued a bulletin following the news, saying that it expects LPL to maintain leverage at 1.5x to 2.5x. Its ratings remain intact.
The ratings agency said LPL’s debt is likely to increase by over $1 billion to finance the acquisition, but it points to the cost synergies that will be realized. LPL said it will suspend its share buyback program, which S&P believes will limit the need for further debt.
“Our capacity to invest and make acquisitions is much larger than this transaction,” Steinmeier said. “We are responsibly pausing share buybacks as we refill the coffer of our available capital. With those two together, this is a non-event when it comes to ratings agencies.”