Considering that Securities America’s 1,700 advisors are coming into a phase where performance matters to the broker-dealer’s parent company -- almost like never before -- at least they will be working with some familiar faces.
After Ameriprise Financial finalizes a deal to sell Securities America to Ladenburg Thalmann for $150 million, it will essentially be made whole for the money it shelled out back in April to settle investor civil lawsuits surrounding faulty and, in some cases, fraudulent private placement investments. Back then, the firm agreed to a $150 million backstop for its troubled broker-dealer.
The acquisition, announced Wednesday morning, is structured like an earn-out. After fronting the initial cash at closing by the end of the year, Ladenburg could hand over more cash to Ameriprise if the broker-dealer meets specific performance targets during 2012 and 2013. A $150 million payout is just one-third of the $450 million in annual revenue the firm recorded last year.
"An amazingly low price,” Chip Roame, managing partner of Tiburon Strategic Advisors said. “Often firms sell for around three times revenues.” The selling price also gives Ladenburg Thalmann a big cushion, allowing it to lose 85% of its sales before the parent would actually start to lose money on the deal.
Ladenburg Thalmann’s management is hoping to tap into Securities America’s large national network of advisors -- 1,700 who manage about $50 million in client assets -- as a potential market for its proprietary institutional research, capital markets and syndicate products, Richard Lampen, president and chief executive officer of Ladenburg Thalmann, said in a telephone interview.
“If one of the advisors has a client looking for valuations to either sell a business, or to raise capital, they can to make the introduction to investment bankers at Ladenburg Thalmann,” Lampen said.
For their part, Securities America’s advisors get access to standout services at Ladenburg, such as its advisor-friendly trust services, said Jim Nagengast, president and chief executive officer of Securities America. “From the other broker-dealers, there is product expertise and due diligence,” Nagengast said. “Our advisors will benefit from that enhanced service offering.”
There is the risk, of course, that Securities America advisors continue to exit the broker-dealer, eroding the revenue base and diluting the deal’s value. Roame says incentives, if extended, could allow a much higher payment if the Securities America reps stay.
Other independent broker-dealers, like LPL Financial, have offered valued teams as much as 30% in retention bonuses to keep them, according to one industry recruiter. There was immediate word on whether current Securities America advisors would receive incentives to stay.
Securities America will benefit from the deal, initially, according to Sophie Schmitt, a senior wealth management analyst at Aite Group.
The firm has about $50 billion in client assets, including $15 billion in AUM at its investment advisor subsidiaries. It will be the big fish in the pond.
Ladenburg Thalmann’s two other broker-dealers, Triad and Investacorp, have about $20 billion in client assets combined. It will therefore confer a huge economy of scale to its broker-dealer business and attract a lot of business-building attention from its new parent, Schmitt said.
Securities America, the nation's seventh-largest independent-broker dealer, had been actively shopped by its parent company since this spring. Investors had lost about $400 million on the private placement securities issued from Medical Capital and Provident Royalties, some of which turned out to be fraudulent.
Phillip Frost, Ladenburg's principal shareholder and chairman, will finance the deal. The acquisition did not need shareholder approval.
For more details and background on the Ladenburg Thalmann purchase of Securities America, take a look at these stories: