Advisor Group, Cetera Financial seen as potential buyers of Ladenburg Thalmann

Ladenburg should command a price of at least $1 billion, based on its enterprise value

Nov 1, 2019 @ 12:45 pm

By Bruce Kelly

Advisor Group and Cetera Financial Group, along with a private-equity investor, are the likely buyers of Ladenburg Thalmann Financial Services Inc., according to several industry sources, with the value of the brokerage network and its 4,400 financial advisers estimated to be at least $1 billion.

Ladenburg Thalmann is currently working with an adviser to weigh potential offers.

Bloomberg News reported Friday afternoon that Ladenburg is in talks with Advisor Group, citing "people familiar with the matter."

Several industry executives pointed to Advisor Group and Cetera Financial as good fits for Ladenburg Thalmann's network of five independent broker-dealers. Advisor Group and Cetera operate similar businesses with stand-alone broker-dealers that use multiple clearing firms for advisers' commission business or custodians for registered investment advisers, as opposed to using or emphasizing a single brokerage or custody platform.

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That smooths the way for such a large acquisition, those sources said.

"All the Ladenburg Thalmann broker-dealers are dual-clearing friendly," a priority in a potential acquisition, said Jon Henschen, president of Henschen & Associates, a recruiting firm.

He noted that LPL Financial has its own clearing firm for brokerage business and has been emphasizing its own custody platform for RIAs, making a purchase of Ladenburg by LPL less likely.

Many Ladenburg advisers run their RIA businesses through Schwab Advisor Services or Fidelity Clearing & Custody Solutions, Mr. Henschen said. "Those types of assets are not attractive to a firm like LPL."

A private-equity fund could also make either a majority or minority investment and essentially recapitalize the firm, he added. Private-equity funds have been extremely active buyers of broker-dealers and registered investment advisers, seeking outsized returns.

Unlike some other independent broker-dealer networks, Ladenburg Thalmann also has small investment banking and asset management businesses.

A spokesperson for Advisor Group could not be reached for comment. A spokesperson for Cetera Financial did not return a call to comment. A spokesman for Ladenburg declined to comment.

Meanwhile, one investment banking source, who asked not to be named, said that Ladenburg Thalmann's enterprise value is close to $1 billion, making that the floor for any potential bid on the company.

It's a seller's market for broker-dealers and RIAs, the banker noted, but falling interest rates mean broker-dealers generate less cash flow from client deposits, making it a propitious time to sell.

Enterprise value is commonly used as a metric in potential acquisitions. It's calculated by adding the market capitalization of a company and its long- and short-term debt, minus any cash on hand.

The share price of Ladenburg Thalmann jumped on this week's news of a potential acquisition. It opened the week trading at $1.98 but by Friday at noon had risen 24.2% to $2.46.

The company's market capitalization at midday Friday was $365.4 million. Add in notes payable of $335.7 million and preferred stock of $425.3 million, and the total is slightly more than $1.1 billion. Subtract $72 million in reserves for regulatory net capital requirements, and the enterprise value for the business is between $1 billion and $1.1 billion.

Ladenburg Thalmann started building its network of independent broker-dealers in 2007 when it bought Investacorp Inc. Since then, it has acquired Triad Advisors Inc., Securities America, Securities Service Network Inc. and KMS Financial Services Inc.

Those firms had close to 4,400 advisers at the end of last year and reported $1.38 billion in total revenue at the end of 2018, according to InvestmentNews data.

The company reported client assets of $178 billion at the end of June.


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