First Allied buys Waddell & Reed unit

Acquires 403(b) specialist Legend Group; 'scale matters'

Oct 31, 2012 @ 3:30 pm

By Andrew Osterland

First Allied
+ Zoom

Independent broker-dealer First Allied Holdings Inc. announced Wednesday the acquisition of The Legend Group, an investment advisory firm, from Waddell & Reed Financial Inc.

Palm Beach Gardens, Fla.-based Legend specializes in retirement solutions such as 403(b) plans for public educators and employees of nonprofit organizations. It has approximately 450 financial advisers and $6 billion in assets under management. The unit will continue to operate as an independent firm under the same name.

The transaction price on the deal was not disclosed. Publicly traded Waddell & Reed, which reported earnings this morning, took a charge of $42.4 million to write down the investment. Given Waddell paid approximately $75 million for the firm in 2000, according to SEC filings, the price tag is likely around $33 million.

“The sale of Legend reflects our desire to emphasize our core business,” Hank Herrmann, chief executive of Waddell & Reed, said in a statement.

“We think we got good value in the deal, and if we do our jobs right, it will help both firms' advisers be more successful,” said Joel Marks, chairman of First Allied Securities.

The acquisition marks the first substantial transaction by Allied since it was acquired by private-equity firm Lovell Minnick Partners LLC a year ago. It won't be the last. “With Lovell Minnick backing us, our goal is to do acquisitions that make sense,” Mr. Marks said.

He added that in an environment of slimmer margins for the brokerage industry, smaller firms need to bulk up. “Scale matters in this industry. You have to get bigger,” Mr. Marks said.

The Legend Group is a somewhat unusual first foray into the acquisition market for First Allied in that it's not a traditional broker-dealer, and the combination doesn't offer the potential for substantial cost savings.

“There are some obvious short-term synergies in terms of operating leverage and combined purchasing power, but we believe that synergies on the growth and revenue side will be much greater than on the expenses side,” Mr. Marks said.

He added that First Allied advisers will benefit from Legend's expertise in the 403(b) market and that his firm's expertise with practice management, marketing and a range of product solutions will benefit Legend advisers, as well. “We have a process here to help advisers grow their business and become more profitable. We'll make that available to advisers at Legend,” Mr. Marks said.

Legend Group CEO Mark Spinello said the deal will work to the benefit of his firm's advisers. “We believe this transaction will further enhance our ability to deliver premier solutions to our advisers and their clients. Joining First Allied aligns us with a partner company that shares our independent roots and our business goals,” he said in a statement.

The combined firms will have nearly 1,400 advisers and $28 billion in assets under administration.

While private-equity investors aren't typically known for their patience and appreciation for expected top-line synergies, Mr. Marks said that Lovell Minnick takes a long-term view of their investment. “They want to drive growth rather than just cut costs,” he said. “We sought them out as an investor because of that.”

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