Hellman & Friedman – Texas Pacific Agree to Buy LPL
by Brett Cole and featured in Bloomberg News
October, 2005:
Buyout firms Hellman & Friedman LLC and Texas Pacific Group agreed to buy LPL Financial Services, an independent brokerage with 6,200 financial advisers, in a transaction that values LPL at $2.5 billion.
Hellman & Friedman, based in San Francisco, and Fort Worth, Texas-based LPL said today in a statement. Founders and employees will retain a 40 percent stake in the company, which has 3,000 branches.
The LPL model has a lot of appeal to brokers and allows them to be better advisers,’’ Texas Pacific partner Richard Schifter said in an interview today.
LPL, which has its headquarters in Boston and San Diego,has bolstered its annual revenue by about 20 percent a year since 1991 to $1.1 billion last year as individuals have increasingly sought independent brokers to advise them on their financial future. Unlike brokers at Wall Street firms, about 60 percent of LPL’s advisers use their own names and 40 percent use the company’s name. Together they have about 1 millionclients who typically have $50,000 to $2 million to invest.
The company’s brokers pay LPL for the use of the company’s banking, trust, mortgage, life insurance and securities processing services.
LPL has assets under management of about $100 billion and is among the top 10 U.S. securities firms in terms of the number of brokers. LPL’s market value is about the same as St. Petersburg, Florida-based brokerage Raymond James Financial Inc.
‘Brisk Pace’
“Independent financial advice has been growing at a brisk pace,” said Jonathan Henschen, a former Merrill Lynch & Co. broker who now is president of Henschen & Associates in Marine on St. Croix, Minnesota.“There’s not the baggage that the major brokerages have picked up from being perceived as having biased research or pushing proprietary products.” Mark Casady, LPL’s president and chief executive officer, will become chairman by the end of the year, when the transaction is expected to close. LPL was formed in 1989 through the merger of Linsco and Private Ledger and has made three acquisitions in the last three years.
It has about 100 people working at its Boston office, mostly in legal affairs, and about 1,000 in technology and services in San Diego, Casady said
Takeovers
Private equity firms have announced $208 billion worth of takeovers this year, up 36 percent from the same berg show. Buyout firms are raising their biggest ever funds this year, with New York-based Blackstone Group LP receiving commitments for a $12.5 billion fund, the world’s biggest, and Apollo Management LP last month raising $10 billion, the world’s second-biggest.
To pay for takeovers, buyout firms typically use a combination of their own funds, loans and bonds secured on the company they’re buying. They seek to expand those companies or improve performance by changing management before selling them within about five years.
Hellman & Friedman was founded in 1984 by former Lehman Brothers Holdings Inc. president Warren Hellman and former Salomon Brothers Inc. general partner Tully Friedman, who left in 1997 to start his own firm.
$8 Billion
The firm has raised and managed about $8 billion of capital and invested in about 50 companies including the Nasdaq Stock Market Inc. It raised its fifth fund in August last year, a $3.5 billion investment pool.
Texas Pacific was founded in 1993 by David Bonderman, Jim Coulter and Bill Price. The company manages more than $15 billion in assets and invests in health-care, retail, technology, consumer-products and airline companies.
Morgan Stanley and Goldman Sachs Group Inc. advised LPL. Simpson Thacher & Bartlett LLP was LPL’s legal counsel. Wachtell, Lipton, Rosen & Katz and Arnold & Porter served as legal counsel for Hellman & Friedman and Texas Pacific.