Ladenburg Seeks Broader Market Appeal with Deal

In agreeing to buy Securities America, Ladenburg Thalmann is hoping to leverage the target's large national network of advisors — 1,700 who manage about $50 billion of client assets — to help it sell its own products.

The minimum $150 million deal, announced Wednesday, offers Ladenburg Thalmann an army of advisors and their clients as a potential market for its proprietary institutional research, capital markets and syndicate products, Richard Lampen, the president and chief executive of Ladenburg Thalmann, said in a telephone interview.

"If one of the advisors has a client looking for valuations to either sell a business, or to raise capital, they can make the introduction to investment bankers at Ladenburg Thalmann," Lampen said.

For their part, Securities America's advisors get access to services at Ladenburg Thalmann, such as its advisor-friendly trust services, said Jim Nagengast, the president and CEO of Securities America. "From the other broker-dealers, there is product expertise and due diligence," Nagengast said. "Our advisors will benefit from that enhanced service offering."

There is the risk, of course, that Securities America advisors continue to exit the broker-dealer, eroding the revenue base and diluting the deal's value.

Other independent broker-dealers, like LPL Financial, have offered valued teams as much as 30% in retention bonuses to keep them, according to one industry recruiter.

There was no immediate word on whether current Securities America advisors would receive incentives to stay.

Securities America will benefit from the deal, initially, according to Sophie Schmitt, a senior wealth management analyst at Aite Group. The firm has about $50 billion of client assets, including $15 billion of assets under management at its investment advisor subsidiaries. It will be the big fish in the pond.

Ladenburg Thalmann's two other broker-dealers, Triad and Investacorp, have about $20 billion of client assets combined. Securities America will therefore confer a huge economy of scale to its broker-dealer business and attract a lot of business-building attention from its new parent, Schmitt said.

Securities America, the nation's seventh-largest independent broker-dealer, had been actively shopped by its parent, Ameriprise Financial, since the spring.

After Ameriprise closes the deal, it will essentially be made whole for the money it shelled out in April to settle investor civil lawsuits surrounding faulty and, in some cases, fraudulent private placement investments. Back then, the company agreed to a $150 million backstop for its troubled broker-dealer.

The deal is structured like an earn-out. After fronting the initial cash at closing by the end of the year, Ladenburg could hand over more cash to Ameriprise if the broker-dealer meets specific performance targets in 2012 and 2013. A $150 million payout is just one-third of the $450 million in annual revenue the firm recorded last year.

"An amazingly low price," said Chip Roame, managing partner of Tiburon Strategic Advisors. "Often firms sell for around three times revenues." The selling price also gives Ladenburg Thalmann a big cushion, allowing it to lose 85% of its sales before the parent would actually start to lose money on the deal.

Roame said incentives, if extended, could allow a much higher payment if the Securities America reps stay.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER