LPL chief Mark Casady’s decision to retire was not a complete surprise to advisors and observers.
Over his nearly 15 years as CEO, Casady was successful in expanding LPL and taking it public, but the swollen headcount and the necessity of producing regular profits for shareholders caused service levels to drop, debt to grow, and gave rise to a string of compliance problems.
Then, last October, when Reuters reported that LPL was exploring strategic options including a possible sale, Casady’s future came into focus. Any buyer of the firm would have to “struggle” with the question of whether or not to keep Casady on board, said Dan Seivert, chief executive of Echelon Partners, a mergers and acquisitions consultant.
“He’s very well-respected, and has accomplished a lot, but has not delivered in terms of his overall track record,” Seivert said.
Come January 3, when Casady retires, the board will lose his intimate knowledge of the firm at a time when its future remains in doubt, Seivert said. But the LPL board may have needed a “scapegoat” for its spotty results. Casady told advisors Monday in a memo that he was looking forward to spending more time with his family and the “opportunity to pursue personal interests.”
Dan Arnold, current LPL president, will take over for Casady. Arnold joined LPL in 2007 through its acquisition of the UVEST broker-dealer.
LPL rep Rich Arzaga wasn’t surprised at the announcement. “When you’ve been this long in the position, and you’ve had this many challenges, [Casady] needs a break, and so do we,” said Arzaga, founder of Cornerstone Wealth Management in San Ramon, Calif.
One of Casady’s most noteworthy moves--the 2005 sale of a majority stake in LPL to private equity firms Hellman & Friedman and the Texas Pacific Group--may have been his ultimate downfall. Five years later, when the investment firms took LPL public, Casady found himself in a tough spot.
“As a public company, you have to maximize quarterly returns at the expense of high-quality long-term growth” in the business, Seivert said.
Public ownership “squeezed them into a box,” agreed Chris Channer, owner of Channer Investment Management in Palatine, Ill., an LPL client.
What happens now to LPL is unknown. Another (as yet unknown) group of private equity firms are seen as the most likely buyers -- should a sale come to pass.
But the firm could also continue on as a public company. With Casady gone, the pressure from activist shareholders might abate, giving Arnold some breathing room.
Indeed, remarks yesterday from lead director Jim Putnam hinted that directors might be satisfied keeping LPL's current status as an independent public. And while the 2010 IPO initially enabled LPL to reduce its debt, subsequent acquisitions and share repurchases caused the firm's debt to climb, making the option of an acquisition using leverage more problematic.
Observers note that if a potential buyer wanted new blood in the executive ranks, Arnold likely would not have been picked to succeed Casady.
The news today could be “a stay of execution” for LPL if Arnold keeps the firm on course, Channer said.
But “if it gets bought by some controlling entity” like a large brokerage firm, “that would change everything and put us through a new version of merger hell,” Channer said.
Channer, like other advisors, would prefer a private equity buyer if LPL is sold.
Sale or not, Casady has left existing LPL management with some problems to fix. Reps point to ongoing technology and service improvements that need to be completed. And like everyone else, LPL has to meet big regulatory mandates like the DOL rule that could squeeze margins.
“Hopefully [LPL is] in the kind of shape where Dan [Arnold] can continue the progress,” Arzaga said.