LPL paying steep price for NRP

LPL Investment Holdings Inc. is paying a pretty penny to dive into the pension and retirement market. In its quarterly report yesterday, LPL revealed news that definitely makes a splash: It’s paying $27 million for the assets of National Retirement Partners Inc. The broker-dealer announced the acquisition last month. A main asset of National Retirement is its broker-dealer, NRP Financial Inc., which last year generated total revenue of $42.2 million, according to audited financial statements on file with the Securities and Exchange Commission. LPL is paying a rate of 63 cents on the dollar for the broker-dealer’s most recent annual revenue. That’s an eye-popping valuation, one industry attorney said. “If that’s correct, that’s among the highest prices as a percent of trailing 12 that you have seen in a long time,” said Steve Insel, partner with Jeffer Mangels Butler & Mitchell LLP. Trailing 12 is industry shorthand for a firm’s or rep’s fees and commissions from the prior 12 months. National Retirement Partners is a known industry leader in the retirement market, and its purchase gives LPL a foothold in the retirement plan market. NRP, the broker-dealer, has about 350 reps and advisers. Mr. Insel said that the rule of thumb for buying independent broker-dealers has historically been an acquisition valuation of anywhere from 5% to 45%of a firm’s gross revenue. He said that National Retirement Partners appeared to be an attractive acquisition for a number of reasons, including its niche in the retirement market. He also noted that the retirement market usually has less risk of legal liability than others. NPR also provides cross-selling opportunities for LPL’s approximately 12,000 reps and advisers. In its filing, LPL said an additional contingency payment would also be made to National Retirement Partners three years after the deal closes. LPL will pay 25% to 30% of the trailing-12-month revenue that exceeds an undisclosed performance target, according to the filing. Such contingency payments are common in broker-dealer acquisitions, Mr. Insel noted. David Lilly, a spokesman for LPL, said the firm would provide no comment beyond the publicly available information.