Are LPL and Osaic in the hunt for the old United Capital?

With Goldman Sachs considering jettisoning the registered investment advisor business it bought just four years ago, two giant broker-dealer networks, LPL Financial and the recently rechristened Osaic, make intriguing potential buyers, one industry analyst said.

In 2019, Goldman acquired United Capital for $750 million and then renamed it Personal Financial Management. The RIA unit targets high-net-worth clients, but not the ultra-wealthy, who have accounts with $20 million to $50 million and are the typical target client for the giant investment bank.

The financial advisors who work with broker-dealers like LPL Financial and Osaic typically focus on clients who are characterized as mass affluent and have $500,000 to $1 million in money to invest.

The RIA unit has about $29 billion in client assets. A Goldman Sachs spokesperson on Monday confirmed to InvestmentNews in a statement that the bank was "currently evaluating alternatives" for its Personal Financial Management RIA business.

"Some articles have cited (LPL Financial, or LPLA, its ticker symbol) as a potential buyer of the asset, but have also indicated a PE-backed firm such as Advisor Group (now Osaic) may be the more likely acquirer," Steven Chubak, managing director at Wolfe Research, wrote in a note Monday afternoon.

LPL is a mergers and acquisitions machine, and historically it has executed M&A deals in a price range of six to eight times EBITDA, or earnings before interest taxes depreciation and amortization, Chubak noted. EBITDA is a key metric in evaluating wealth management businesses, particularly RIAs, because of the steady revenues they generate each quarter from client fees.

Under such a scenario, that would imply a purchase price for Personal Financial Management in the range of $270 million to $360 million, or less than half of what Goldman paid, based on the RIA's EBITDA of close to $45 million.

Neither an LPL spokesperson nor an Osaic spokesperson returned calls Tuesday morning to comment.

"Goldman Sachs was never the right fit for United Capital," said Casey Knight, executive vice president of ESP Financial Search. "It could make more sense for an LPL, Osaic or even others. They're better qualified as a suitor."

"We see these developments as a win-win for LPLA; if the firm is able to acquire United Capital, we believe it would be accretive to earnings," Chubak wrote. "If private equity buyers swoop in with more competitive offers, we do not expect LPLA to deviate from its disciplined approach to M&A, but we do expect LPLA to take advantage of increased attrition resulting from such a purchase."

LPL Financial has been a publicly listed brokerage since 2010 and now works with 22,000 financial advisors. Osaic is owned by the private equity manager Reverence Capital and is in the process of combining eight separate broker-dealers into one service and brand platform.