After receiving an unsolicited offer from a potential buyer that it considered low, LPL Financial Holdings Inc. hired Goldman Sachs Group Inc. to evaluate the bid, according to sources inside and outside LPL who are familiar with the matter.
The sources, who did not want to be identified, did not know if Goldman was looking at other strategic alternatives, as had been reported earlier this week by
Reuters.
“The board had the responsibility to hire Goldman Sachs,” according to the source. “Beyond that, no one knows anything.”
[More: LPL Financial’s problems keep piling up]
Analysts have thrown out the names of a number of potential buyers of LPL, the largest independent broker-dealer in the nation with more than 14,000 registered reps and advisers.
A spokesman for LPL Financial, Jeffrey Mochal, said, "As a matter of policy, LPL does not comment on rumors or speculation.”
A clear worry for LPL advisers is whether their ability to work independently would be compromised in a merger. “The concern is if someone big, like an insurance company, buys LPL,” said Doug Flynn, an
LPL adviser for nearly two decades. “They will promise not to change anything. That lasts six to 12 months and then it changes, with the company's products creeping into the platform. When that happens, we're gone.”
Some analysts have contemplated that potential suitors for LPL include a large private equity fund or brokerage firms that already have independent reps and histories of deal- making, such as Raymond James Financial Inc. or Stifel Financial Corp.
The problem is that no company appears to be a snug, strategic fit for LPL, with its fiercely independent advisers, other analysts noted.
“As we expect, both [TD Ameritrade Holding Corp.] and [Charles Schwab Corp.] would be reticent to take on fiduciary risk associated with [LPL Financial] assets alongside cultural – and regulatory – challenges associated with the commissions business,” wrote William Katz, an analyst with Citigroup Global Markets Inc.
Raymond James “seems an unlikely buyer given its preference for conservative [balance sheet] management and higher-producing [financial advisers.] Outside our coverage, we view a large [broker-dealer] acquirer as unlikely given [LPL's] commissions [assets under administration] skew.”
Mr. Katz noted that there are potentially more cons than pros to a strategic buyer for LPL. The pros include the potential for a rise in interest rates that would increase earnings potential for LPL clients' cash and money market deposits and its ability to consolidate smaller broker-dealers and RIAs.
The cons, however, are many, Mr. Katz noted. They include the continued shift from brokerage to advisory limiting net new asset growth, a flattish earnings outlook except for an interest rate hike, and the difficulty for a strategic buyer to sell its product, which would likely rule out an asset manager as a buyer.
In the midst of the fog of a potential sale, what's clear is that LPL has
struggled mightily over the past few years. When the company had its initial public stock offering in November 2010, shares were sold for $30. After wide ups and downs, the share price over six years has barely nudged, with LPL shares trading Thursday morning at $30.93.
Up until a last year, LPL saw a revolving door of senior management, with senior executives such as former president Robert Moore departing in 2105, Derek Bruton, a managing director, in 2014, and William Dwyer, former president of national sales, in 2013. Advisers have routinely expressed frustration at building relationships with management only to have that relationship torn apart when an executive suddenly leaves the firm. LPL has also been fighting to correct a number of compliance problems; in 2014 and 2015, the company paid a total of $70 million in fines and restitution.
