Earlier this week, the news broke that LPL Financial (LPLA) was working with Goldman Sachs on a possible sale of the independent broker-dealer, according to Reuters.
But equity analysts, such as Steven Chubak of Nomura Securities, said Wednesday that LPL "comes with too much baggage" for a publicly traded company to consider buying the largest IBD.
Then came a report in Investment News that there had been an unsolicited bid for the independent broker-dealer.
"As a matter of policy, LPL does not comment on rumors or speculation," LPL said in a statement.
A possible suitor, though, has stepped forward: Former registered rep Joseph Nodarse, head of Hudson, Riley Asset Counsel, who says the issues confronting LPL make it ripe for a deal. Industry-watchers, however, are not optimistic such a plan would come to fruition; this hasn't stopped Nodarse.
"We are exploring a possible acquisition by working with a private-equity firm [or other partner] … and a law firm in Boston," said Nodarse, in an interview Thursday from the Cayman Islands. "We are interested in buying the healthy parts of the firm."
Hudson, Riley—which works as a consultant to institutional investors and pension plans—does not want to buy any of the broker-dealer's operations affected by the new Department of Labor fiduciary standard.
"We would like to take over the part of firm that does not have to be involved with the DOL matters," he said. "LPL has a separately managed account [business] and other wealth-management programs with LLC ownership," which his firm is targeting.
(Year to date, the IBD's stock is down about 27.5% vs. a gain of about 4.6% in the S&P 500.)
"We have no interest in the retail business but are interested in the targeted programs … that focus on qualified qualified investors, foundations and endowments," Nodarse said. "We are thinking to turn that into a family-office business."
While LPL has a market valuation of about $3 billion, he would like to see his firm offer $750 million or so for about 25 branch offices.
"We would do interviews and target individuals responsible for the biggest accounts within company and would pay them if they can retain certain amounts of the [SMA] business," he added.
Skepticism Over Nodarse's Bid
Would LPL be open to such an offer?
"A buyer cannot just buy parts of it," said Tim Welsh, president of Larkspur, California-based Nexus Strategy. "There are shareholders involved, so it cannot be sold in pieces. Plus, why would LPL let go of its profitable asset-management team? It's highly unlikely that LPL would break up its operations and sell them off."
While Welsh agrees that LPL's fee-based SMA business is more attractive than its commission-based counterparts, "It wouldn't make sense for LPL to just sell off the SMA operations, and the shareholders would not go for it."
Nodarse, who revealed his firm's interest in acquired the independent broker-dealer on Twitter on Wednesday, says that Hudson, Riley Asset Counsel is a pension-fund advisory and third-party marketing firm that has done "a number of M&As involving asset managers." It also has worked with Tradex Global Advisors, a fund of hedge funds manager, he said.
