Focus Financial says record acquisitions propel firm to new heights in Q4

Focus Financial says record acquisitions propel firm to new heights

February 17, 2022 5:32 PM

A strong fourth quarter, powered by growth from existing partner firms, closed the book on a year worth celebrating for Focus Financial Partners.

The New York-based firm saw total revenue of $1.8 billion in 2021, up 32.1% from the $1.36 billion in revenue recorded at the end of 2020, according to earning statements released Thursday.

Focus CEO Rudy Adolf said last year was “outstanding,” stating that the results reinforce the firm’s “clear leadership in the independent wealth management sector.”

RIA consolidator Focus Financial Partners

Industry News

Focus CEO says firm isn’t ‘elephant hunting’ for ‘big, flashy deals’

November 5, 2021 10:12 AM

“We generated excellent financial performance, exceeding our expectations on all measures, with revenues and adjusted net income, excluding tax adjustments, reaching new highs,” Adolf said in a statement.

M&A action

Focus closed 22 transactions, including nine partner firm acquisitions and 13 mergers, in the final three months of 2021. That was good enough to push its year-end totals to a record 38 transactions, including 14 partner firm acquisitions and 24 mergers.

“We continue to attract some of the highest-quality firms in this industry, and we ended the year with 84 partner firms in four countries around the world,” Adolf said in a statement. “Our pace of M&A was exceptionally strong in 2021 … Equally important, we took advantage of our scale and reach to substantially expand our value-added services last year, further enhancing our unique value proposition. Our 2022 momentum is excellent, and I am excited about our outlook, both near and long term.”

Fourth-quarter growth

Focus revenues in the fourth quarter totaled $523.9 million, representing a 38% or $144.2 million increase compared to Q4 2020. Officials said most of the increase came from higher wealth management fees. It also included the effect of mergers completed by partner firms and a full period of revenues recognized during the fourth quarter of 2021 for partner firms that were acquired the year before. The company’s year over year organic revenue growth rate was 26.6%, better than an expected 17% to 20% range for the quarter. About 76.8% of total revenues in the quarter were tied to the financial markets, and $259 million was generated from advance billings generally based on market levels in the 2021.

Focus said these revenues typically consist of family office-type services, tax advice and fixed fees for investment advice for high and ultrahigh net worth clients. GAAP net income was $14.9 million, up from $7.7 million in the prior year quarter.

“We delivered another strong quarter in Q4 and an excellent year in 2021, reflecting not only our ability to capitalize on the large and growing market opportunity, but also our consistent financial discipline as our business has grown,” Chief Financial Officer Jim Shanahan said in a statement. “We continued to be careful stewards of our capital, investing in firms that are industry leaders with attractive growth profiles.

2021 highlights

Total revenue was $436.6 million higher than the prior year, and the gains were driven by the same factors that contributed to the strong fourth quarter, according to earnings statements. Revenue growth of $382.3 million from existing partner firms was the primary driver. GAAP net income saw a decline at $24.4 million compared to $49 million in the prior year.

Focus reported adjusted EBITDA of $451.3 million, representing a 40.3% or $129.5 million increase year-over-year. Adjusted EBITDA margin was 25.1%, and adjusted net income, excluding tax adjustments, was $278.7 million.

During an earnings call Wednesday morning, Adolf said he was “incredibly proud” of the company’s performance in 2021 and looks to keep operating at that level this year.

“We entered 2022 with excellent momentum, extending the strong pace of activity we experienced last year,” Adolf said during the call, according to a transcript by Seeking Alpha. “We are working on a substantial pipeline in the U.S., Australia, Canada and the U.K., and plan to expand into other countries.”

Looking ahead

Shanahan remarked that the firm’s Q4 results reflect “the hallmarks of how the company manages and grows its business.” Focus leaders also believe that approach will “generate substantial value for our shareholders in the years to come.

“We believe our growth trajectory is one of the most compelling in the financial services sector, reinforced by our new 2025 growth targets: approximately $4 billion in revenue, $1.1 billion in adjusted EBITDA and a 28% adjusted EBITDA margin,” Shanahan said in a statement. “We are optimistic about our strategy for growth and our financial outlook.”