Two venture-cap firms take a controlling stake in independent brokerage. Private equity firms Hellman & Friedman and Texas Pacific Group are taking a majority stake in independent brokerage Linsco/Private Ledger (LPL). Parties to the deal say it gives LPL a chance to continue growing along the lines of its existing business model.

The deal values the company – which generated sales of $1.1 billion and had over $100 billion in assets under management in its fiscal year 2004 – at $2.5 billion. That’s well over the 20% to 45% of gross annual revenue said to determine valuations for most independent brokerages. When the transaction is completed, LPL’s founders and owners will retain about 40% of the company’s equity, with the rest in Hellman & Friedman’s and Texas Pacific Group’s hands.

“Our partnership with Hellman & Friedman and TPG will provide a platform for us to expand upon the key elements of our success, especially the ability of our financial advisors to offer unbiased advice and services to their clients, and further strengthen our commitment to our advisors as the basis of our business,” LPL president and CEO Mark Casady says in a press release.

Same plan

The transaction comes against a backdrop of consolidation in the brokerage business as players feel the pinch of increasing competition and declining commission fees. The past few months have seen Ameritrade’s purchase of TD Waterhouse’s U.S. brokerage, Smith Barney’s takeover of Legg Mason’s broker-dealer, E-Trade’s acquisitions of Harrisdirect and BrownCo, and Merrill Lynch’s purchase of Advest.

Casady says the deal won’t touch LPL’s business model or corporate philosophy. “Our financial advisors will continue to be the most important people in this company, and we will continue to focus on providing them with the support, services, and infrastructure to succeed,” he says. “We are committed to continuing to invest in and grow our ability to offer exceptional unbiased research services, leading-edge technology, and superior office support to our financial advisors.”

Hellman & Friedman managing director Jeffrey Goldstein says his firm was attracted to LPL by its dedication “to serving its financial advisors with access to high quality products, effective support services and an outstanding technology platform.” He adds that the company is “a great fit with Hellman & Friedman's strategy to invest in top quality franchises with superior management teams and strong growth prospects.”

Texas Pacific Group partner Richard Schifter says that LPL and the registered representatives that use its brokerage platform “are well-positioned to capitalize on emerging opportunities” in the rapidly evolving retail investing industry.

Once the deal is done LPL co-founder Todd Robinson will become chairman emeritus and hand the chairmanship of LPL’s board to Casady, who’ll add that role to his responsibilities as president and CEO. Co-founder Jim Putnam will stay on as vice chairman. Co-founder Dave Butterfield, who now shares the vice-chairmanship with Putnam, will retire. No other management changes are expected.

Boston- and San Diego-based LPL offers non-proprietary investment products, research and wealth-management services through roughly 6,200 financial advisors. The company says its advisors manage about $100 billion in client assets. –FWR

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