The registered investment advisor mergers and acquisitions market got a jolt this morning when Focus Financial Partners Inc., which had its initial public offering in the summer of 2018, said it was going private in an acquisition valued at more than $7 billion or $53 per share.
That's a premium of 36% over the average share price in the 60 days before Focus Financial Partners, a leading buyer and aggregator of RIAs, announced Feb. 2 that it was in negotiations to go private. The buyer is private equity manager Clayton Dubilier & Rice, and the deal marks that manager's first significant acquisition in the wealth management industry, several industry sources noted Monday morning.
In October, shares of Focus Financial hit a recent low of a little more than $30, or about $8 less than its first day of trading in July 2018.
"When Focus went public five years ago, it started trading in mid-thirty-dollars-per-share range," said Daniel Seivert, CEO and managing partner of Echelon Partners, a boutique investment bank that works with RIAs. "It wasn't till this deal came along did it get that 36% premium."
The transaction, which is expected to close in the third quarter, brings to mind a handful of wealth management transactions over the past 17 years that involved private equity or prestigious Wall Street firms: Goldman Sachs acquiring RIA aggregator United Capital in 2019 for $750 million; Lee Equity Partners taking Edelman Financial Group private in 2012 for around $265 million; and two private equity firms, Hellman & Friedman and Texas Pacific Group, buying 60% of LPL Financial in 2005, when LPL was a private company.
LPL had its IPO five years later and was valued at $2.5 billion at the time. On Monday, the market capitalization of LPL Financial Holdings Inc. was close to $19.5 billion.
The all-cash transaction for Focus Financial Partners of $7 billion is based on the firm's enterprise value, or in large part a combination of equity, roughly $4 billion, and debt, which totals $3 billion.
Funds managed by Stone Point Capital agreed to retain a portion of its investment in Focus and provide new equity financing as part of the deal.
Focus Financial Partners has been a deal-making machine since it launched in 2004, with more than 200 transactions completed through 2021. The firms it has acquired kept their own brands and could even use the Focus mothership as a bank for their own deals.
"It's a good acquisition model," said Dennis Gallant, associate director with ISS. "There is strong growth potential in this market and firms like Focus are set up to capture that consolidation."
"This transaction represents an important evolution in the resources we will have to invest, enabling us to increase the value we deliver to our partners and their clients," Rudy Adolf, founder, CEO and chairman of Focus Financial Partners, said in a statement.
"Our diverse and growing partnership creates enduring advantages," Adolf added. "We are uniquely positioned to capitalize on industry trends while offering the expertise and resources that help our partners provide differentiated service to their clients."
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