How big will a publicly owned LPL Investment Holdings Inc. become?
After the nation's largest independent-contractor broker-dealer said last week that it will offer its shares to the public at a price of up to $30 a share, some in the industry wondered how public ownership will shape the company's future.
With more than 12,000 representatives in its network, LPL is already one of the largest brokerage firms in the country. And firms become public companies in order to grow, said Barry Metzger, chief executive of brokersXpress LLC, the independent-broker-dealer arm of the publicly traded optionsXpress Holdings Inc.
“My guess is, they're going public to do more acquisitions,” he said. “If an adviser [with LPL] is already concerned about the size of the firm, the concerns have just gotten bigger.”
In 2005, when two private-equity firms acquired a majority stake in LPL, the firm had 6,300 reps and financial advisers. It then went on an acquisition binge and added five broker-dealers, just about doubling the number of affiliated brokers.
And the firm hasn't stopped buying. This summer, LPL said that it was acquiring the assets of National Retirement Partners Inc., which has about 350 reps and advisers affiliated with its broker-dealer, NRP Financial Inc.
At the time of that deal, LPL was valued at about $2.5 billion. Assuming a share price of $30, the current valuation of the firm would be closer to $3.7 billion.
LPL's becoming a public company has been widely viewed as a seminal event for the independent-contractor broker-dealer industry. Long overlooked and misunderstood by the investment community, independent-contractor broker-dealers see LPL's public listing as a validation of the way their firms do business.
Anticipation of LPL's initial public offering has been building since June, when the firm filed its initial registration.
Mr. Metzger echoed many in the industry in praising LPL's team of executives and owners for executing the firm's strategy to become a publicly traded company.
“For the independent-broker-dealer industry, this is a great story,” he said. “If LPL helps raise the bar for the industry, that's great.”
Mr. Metzger said that public companies face challenges that private firms don't, especially in the areas of corporate governance and shareholder relations.
BIG PAYDAY
In its filing of a preliminary prospectus with the Securities and Exchange Commission last Wednesday, LPL said that it could offer 17,176,195 shares. That number is subject to change, as is the estimated initial offering price of between $27 and $30 a share.
With an offering of that size at the $30 price, LPL Investment Holdings would have a market capitalization of $515 million. There would be 107.1 million shares outstanding after the sale, which could happen at any time.
LPL is majority-owned by private-equity firms Hellman & Friedman LLC and TPG Group.
According to the preliminary prospectus, the firms each control about 36.3% of the common stock. They will retain the vast majority of their shares after the IPO, according to the prospectus. Each will own between 31.5% and 31.9% of the firm, depending on whether underwriters headed by co-lead managers Morgan Stanley and The Goldman Sachs Group Inc., and a parade of other banks, including Bank of America Merrill Lynch and JPMorgan Chase & Co., exercise their stock options in full.
Most of the shares being offered belong to executives, board members, underwriters or reps and advisers.
If the stock price is $30 a share, several LPL executives will realize a payday of several million dollars. Mark Casady, chairman and chief executive, for one, owns 4% of the firm, or 3,930,000 shares.
According to the filing, he is slated to sell 1,930,000 shares. If those shares are sold at $30 apiece, Mr. Casady will take home a $58 million check.
Esther Stearns, LPL's president and chief operating officer, owns 2,050,000 shares. She intends to offer 1,170,000 shares, which will net her $35.1 million at $30 a share.
William Dwyer, the firm's president of national sales and marketing, owns 1,780,000 shares, or 1.9% of the firm. He intends to sell 275,000 for a potential gain of $8.25 million.
At the same time, some of LPL's most noted and longest-affiliated advisers will see a windfall once the company goes public and shares begin to trade.
(Click here for a list of the smaller stakeholders in LPL and
click here for a list of the largest principal and selling stockholders after the public offering.)
LPL has long had a stock plan in place for its advisers, in which reps and advisers earn shares based on the number of years of their affiliation with the company and their assets under management.
Recent public filings associated with LPL's im-minent IPO have revealed the stock accumulations of a number of its top -producers.
Ronald Carson, president of Carson Wealth Management Group, controls 74,930 shares. He will offer 48,705 shares as part of the impending offering, according to filings with the SEC.
If the shares are priced at $30, Mr. Carson will see a gain of $1.46 million.
Another high-profile adviser, Susan Kaplan, president of Kaplan Financial Services Inc., controls 64,670 shares and will offer 42,036. At $30 a share, she will see $1.26 million.
According to LPL, Mr. Carson manages $2.4 billion in assets and has been with LPL since 1989. Ms. Kaplan controls $800 million and began her affiliation with LPL in 1991.
Other prominent LPL advisers who stand to see significant returns include John Waldron ($989,000), Michael Gilbert ($895,000), Todd Feltz ($822,000) and Robert Fragasso ($690,000). Hundreds of brokers hold smaller stakes in LPL.
Wall Street titan Goldman Sachs also stands to profit from the deal.
In addition to being co-lead manager on the IPO, the firm is selling 1,931,541 of the nearly 3 million LPL shares it holds. If the offering comes in at the top end of the price range, Goldman should rake in about $58 million for its shares.
LPL Investment Holdings, which cannot comment because it is in a quiet period before the public offering, intends to list its common stock on the Nasdaq Global Select Market under the symbol LPLA.
E-mail Bruce Kelly at bkelly@investmentnews.com.
