LPL Investment IPO Faces Struggle

After serving the independent financial advisor market for over 20 years, LPL Investment Holdings (LPLA) may have some tricks up its sleeves for generating IPO interest, despite certain negative aspects that may hinder its short-term potential.

Investors have many IPOs to pick from this week, but Goldman Sachs will be taking the lead on some of the smaller deals such as LPLA, which is planning to price 15.6 million shares between $27.00 and $30.00.

Unfortunately, some investors may be unable to look beyond the fact that insiders, primarily LPLA's management team, will be responsible for 100% of the IPO as they look to take some equity while the company retains nearly $1.4 billion in debt.

Additionally, potential investors will be up against a concentrated ownership structure that may not operate in their best interest, as LPLA's two private equity, "majority holders" will maintain an aggregate 63% position after the IPO.

LPL Investment Holdings: LPLA

• Lead Underwriter: Goldman Sachs
• Offering: 15.6 million shares
• Current Price Range: $27.00 - 30.00
• Deal size to the mid-range: $445.0 million
• Market cap to the mid-range: $3.05 billion
• Sector: Security brokers and dealers
• Scheduled: 11/16

TPG Capital and Hellman & Freidman entered the equation in 2005; while these relationships tend to do more harm than good, LPLA has been able to shoulder the interest expense and neither firm is "dumping" shares at the IPO.

Unfortunately, the majority of LPLA's officers, many of whom predate the 2005 merger, are taking this opportunity to exercise options and cash out a portion of their shares.

Despite these "red flags," LPLA is still able to offer an attractive opportunity based on the niche market it serves. By providing an integrated platform of propriety technology, unbiased, conflict-free financial advice and clearing services, LPLA has become a leading distributor of financial products, supporting the fifth largest overall advisor base in the U.S.

LPLA's advisor base is comprised of independent financial advisors, RIAs and advisors at small and mid-sized financial institutions that must meet stringent requirements before they are licensed with LPL Financial.

Once approved, they enter into a registered representative agreement, placing all orders of approved products through LPLA. The advisors receive support for their daily activities and maintain 85% to 90% of the commission and advisory fees they generate.