Ladenburg acquires indie firm Investacorp

Ladenburg Thalmann Financial Services Inc.’s acquisition last week of Investacorp Inc., could position the latter to be more active in recruiting representatives and financial advisers, as well as potentially buying smaller firms.

The independent-contractor broker-dealer has close to 500 affiliated registered reps.

The key is the access to capital, said Bruce Zwigard, president and chairman of Investacorp, which is based in Miami Lakes, Fla. In the future, the company, whose reps manage about $8.5 billion in client assets, can potentially be “more aggressive in recruiting, and better suited to acquire firms,” he said.

Ladenburg, which announced the acquisition last Monday, said the deal was structured in three parts, with the firm paying a total of $45.1 million for Investacorp.

Investacorp reported $63 million in gross revenue for its fiscal year ended in June, and it ranked 36 on the InvestmentNews survey of leading independent broker-dealers.

Ladenburg is paying $25 million in cash collectively to Mr. Zwigard and a related seller when the deal closes.

It will pay another $15 million in cash over a three-year period. And Ladenburg is also paying $5.1 million to the sellers as a reimbursement for Investacorp’s pre-existing net worth.

Last Tuesday morning, shares of Ladenburg traded at between $1.93 and $2.01.

The deal raised some eyebrows in the industry because it was outside the typical range of such acquisitions, observers said.

The valuation of a broker-dealer is typically 25% to 40% of the firm’s revenue, said an industry recruiter, who added that the key to any acquisition is the retention of its reps.

Ladenburg paid 71% of Investacorp’s revenue.

“The price was certainly an attention getter,” said the recruiter, who asked not to be identified. “It was on the high side of historic valuations.”

Also, with Ladenburg buying Investacorp’s stock and not simply the assets of its brokers, it potentially takes on greater liability, the recruiter said.

Over the past few years, Ladenburg has seen a turnaround in its business. In 2004, the firm said its shares could be delisted from the American Stock Exchange because of losses.

Last year, the firm named a new chief executive, Richard Lampen, and relocated to Miami, from New York, where its broker-dealer subsidiary, Ladenburg Thalmann & Co. Inc., remains.

This year, Ladenburg reported total revenue for 2006 of $46.9 million, up from $30.7 million in 2005.

Investacorp’s annual revenue of about $63 million will mean Ladenburg revenue will more than double.

Before the deal, Ladenburg had no platform for independent reps and had about 100 retail brokers. The firm has been primarily an investment banker, and its brokers, mostly in the New York area, worked with wealthy individuals.

“We’re very excited about getting into the independent space,” Mr. Lampen said.

He acknowledged that Ladenburg has experienced some trying times. “Ladenburg Thalmann went through a couple of difficult years after the Internet stock bubble burst,” Mr. Lampen said.

The company has seen an infusion of capital to help its rebound, he said. “Over $50 million of new equity came into the firm, or debt was converted to equity,” Mr. Lampen said.

The firm has also worked diligently to reduce its expenses.

Dr. Phillip Frost, ranked 283 in the Forbes list of the 400 richest Americans, is now the company’s largest shareholder and last year became chairman. His net worth is $1.2 billion, according to Forbes.

Dr. Frost is the largest shareholder of Ladenburg, according to records of the Financial Industry Regulatory Authority Inc. of New York and Washington.

While some industry observers said that Investacorp had been for sale for some time, Mr. Zwigard dispelled any notion that it had been on the block.

Instead, the firm had looked to buy or combine with another firm, he said. The brokerage industry requires capital, particularly with larger firms “coming into the field,” Mr. Zwigard said.

Investacorp will operate as a separate company and not be integrated into Ladenburg’s platform.

“We’ll maintain our culture and the types of relationships we have” with reps and advisers, Mr. Zwigard said.

Bruce Kelly can be reached at [email protected].