LPL to Buy Waddell & Reed’s Brokerage Business for $300 Mln
Waddell & Reed Financial, Inc., said Wednesday that it will sell itself for about $1.7 billion in cash to Macquarie Asset Management, which will then sell Waddell’s independent brokerage business to LPL Financial Holdings.
“Waddell & Reed advisors are highly experienced and well-respected throughout the industry,” LPL President and Chief Executive Dan Arnold said in a prepared statement. “Looking ahead, we expect our capabilities and resources will benefit their practices and help them unlock additional value and growth.”
The arrangement will end a challenging period for Kansas City-based Waddell, which has battled regulatory sanctions in its wealth management business and a steady decline in its asset management flows for several years.
At the beginning of 2020, shortly before the advent of the coronavirus crisis, Waddell executives said they would focus more strongly on wealth management and pump up their recruiting efforts.
The firm’s brokers on average work with $70 million of client assets per advisor, LPL said in a presentation accompanying the deal announcement. Client assets under administration at Waddell grew about 10% to about $63 billion as of September 30 from a year earlier, with about 45% in advisory accounts and 55% in brokerage accounts.
LPL as of September 30 had $810 billion of client assets, just over 50% in advisory accounts.
LPL expects to spend $85 million over 12 months to integrate the Waddell business but projected that the deal will add earnings before interest, taxes and depreciation of at least $50 million within a year of the close. The estimate assumes that LPL will retain about 70% of Waddell clients’ assets. (LPL reported trailing 12-month EBITDA of about $900 million as of September 30 and trailing-12 gross profit of $2.1 billion.)
Macquarie, which operates the Delaware family of funds in the U.S., said it has entered into “an enhanced partnership” with LPL on asset management distribution. LPL referred to the arrangement as a “long-term sponsor agreement.”
The transaction price that Macquarie will pay represents a premium of approximately 48% to the closing price of Waddell & Reed common stock on December 1, 2020, and a premium of approximately 57% to Waddell & Reed’s volume-weighted average price for the last 90 trading days, according to Waddell.
The firm, founded in 1937, sells investment products under the Ivy Investments brand. As of the end of the third quarter, Waddell had $68 billion of assets under management in the business that Macquarie is retaining.
Centerview Partners was LPL’s financial advisor on the transaction. J.P. Morgan Securities was lead financial advisor to Waddell & Reed, with Wells Fargo Securities in a sub-advisor role.
RBC Capital Markets was Macquarie’s exclusive financial advisor.