It’s the moment LPL Financial (and much of the broker/dealer world) has been anticipating for at least the last five years. The independent channel’s largest b/d filed forms S-1 with the SEC on Friday, signifying its intent to float shares to the public.
“It’s a long awaited development,” says Dan Inveen, founder of FA Insight, an advisory consulting firm in Tacoma, Wash. “Especially since it sold a majority stake to two private equity firms in 2005.” The firm plans to raise $600 million through the sale of primary shares to be sold by the company and secondary shares to be sold by some of its existing minority stockholders, according to LPL. (A copy of the Red Herring was not yet available.)
Those private equity firms, Hellman & Friedman and Texas Pacific Group, each hold a 36.3 percent of LPL common stock. As one advisor puts it, “[The private equity firms] didn’t invest in LPL to hang out. It was a business decision and they’re ready to monetize their investment.” The PE firms’ 2005 investment valued LPL at $2.5 billion, or 2.5x gross revenue—a multiple analysts said was the highest ever for an independent b/d. At the time, LPL served just fewer than 6,000 reps. Since then, LPL has more than doubled it's force of advisors to 12,026 as of March 31. One Massachusetts-based advisor says the company is worth at least $4.5 billion today, up from $2.5 billion at the time of the 2005 private equity investment. LPL could not comment on that estimate.
Inveen says as a public company LPL will have to disclose much more about its activities and business. “Things that were never made public before will be subject to shareholder approval,” he says. Some advisors are already feeling the angst related to shareholder scrutiny.
Mark Shepherd, an LPL advisor who has been with the firm for nearly 20 years, says he is both excited and nervous about the IPO. “Going public changes the culture of a company. Now you have to meet quarterly performances. It doesn’t necessarily mean it will change for the worse. In fact, I believe LPL will succeed handsomely with this IPO, but it’s a change nonetheless,” he says.
The filing with the SEC is the first step in a process of paperwork that will be filed with the SEC over the next few months, advisors and consultants say. LPL has not disclosed when the IPO will take place; the shares have not yet been priced. Goldman Sachs and Morgan Stanley will serve as “the senior bookrunners,” LPL says. Bank of America/Merrill Lynch and JP Morgan will serve as junior bookrunners.
And while the ticker has been revealed as “LPLA” there is no word on what exchange the company will trade on. Some speculate LPL shares will trade on the NYSE, as do most other financial companies.
One advisor says he’s been gifted equity in the firm each year since 2005 when the private equity firms took a majority stake in the firm. “I don’t pay much attention to it but I believe my equity has added up to a significant amount,” he says. His equity was awarded based on several factors, including production, length of service and type of business. Dennis Gallant, principal of consulting firm Gallant Distribution Consulting in Sherborn, Mass., says that equity will now play an even more important role in retaining management and advisors.
Advisors at the firm say they are being kept up to date with a series of conference calls, webinars and e-mails from management. And Friday, LPL CEO Mark Casady sent advisors a message about the IPO as soon as the firm filed, Shepherd says. “Management is being completely mindful of advisors in this process. We’ve also being anticipating this for quite some time,” he says.
Indeed, LPL has spent the last several building “critical mass” by acquiring broker/dealers, a third-party brokerage services firm, gaining more than 9,000 brokers since 2003 and launching an RIA custody business. Inveen says, “Clearly the timing at which you stage an IPO can be significant. I suspect LPL has prolonged the IPO in light of the economic downturn. But these are astute people and they suspect things are moving in right direction now,” Inveen says.
To read LPL’s form S-1 filing, click here.