For the second time in a month, LPL Financial said it intends to buy the assets of a small broker-dealer, this time E.K. Riley Investments, which also had a registered investment adviser business. Based in Seattle, E.K. Riley has about 35 advisers and $2 billion in client assets.
At the end of April, LPL said it was acquiring Lucia Securities, a San Diego broker-dealer that also had an RIA. LPL's purchase of both firms is characterized as an "asset purchase." In such transactions, the buying firm pays for the advisers and client assets but limits its exposure to liabilities and expenses stemming from the broker-dealer.
Specific terms of LPL’s purchase of E.K. Riley were not disclosed, but LPL said in a statement that the asset purchase agreement includes both a payment at closing, expected in the second half of 2020, and potential contingent payments. LPL said it estimated a transaction multiple of approximately six times post-merger EBITDA, or earnings before interest, taxes, depreciation and amortization.
With more than 16,000 reps and advisers, a significant part of LPL's ongoing growth strategy is broker-dealer acquisitions, noted LPL's CEO Dan Arnold, during a conference call last month with analysts to discuss first quarter earnings.
Fallout from COVID-19 could create opportunities for big firms like LPL to make acquisitions, Arnold said.
“This climate may also create more M&A opportunities, and our approach here remains the same,” Arnold said. “We are interested in firms that are aligned strategically, financially and operationally and we're starting to see opportunities materialize like the acquisition of Lucia Securities.”
“In environments like [the one] we're coming out of, we would anticipate, based on what history would tell us is, that there would be demand and opportunity for continued consolidation within that segment of the marketplace,” he said.
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