With
A civil lawsuit filed late last month by accountant and celebrity business manager
The situation is "the perfect storm of a David and Goliath story," Segal said in an interview. "Their attitude is, 'We don't have to tell you or do anything. It's none of your freaking business.' Well, that's not what the documents say, and that's how we got here."
The lawsuit was first reported
Representatives for Focus provided a statement to the Times that said the lawsuit has no merit and Segal is "attempting to take advantage of Focus' pending go-private acquisition to increase the economics he derives from the Focus partnership."
"These claims are without merit," Goldman spokeswoman Sophia Anthony said in a statement. "From the outset of our engagement, Goldman Sachs acted fairly and honestly to run an efficient, competitive process. Goldman Sachs had every incentive to achieve the best outcomes for both our clients, and it is absurd to suggest otherwise."
Segal's lawsuit followed the usual series of "investigation" announcements
The deal has also prompted some reflection among industry experts and rival RIA aggregators about the lessons stemming from
"The notion used to be to say, 'Hey, you get your stage of funding, eventually you go to the public markets to get the most liquidity, the highest valuation," Furey said of the "very interesting" Focus transaction. "But is this proving, in our space, that is not the case?"
"To me, it says the public markets don't understand the wealth management business," Bicknell said. "Focus was taken private, as you mentioned, at a significant multiple discount to the last dozen or so deals of similar firms. And so, to me, that just says that the market is not valuing the business."
NKSFB
When Focus purchased the company, it and the former owners created a separate management company that receives a fee based on Focus' profits from NKSFB. In the middle of last year, Segal and Focus began exploring a sale of NKSFB and the management company that received Focus' profits for NKSFB's former owners. At the urging of Focus, Segal's team hired Goldman to be its investment banker in the process. They agreed to hire Goldman last September and, the following month, the three parties signed a non-disclosure agreement requiring "that each of the joint clients would know what the other was doing with respect to the proposed transaction," according to the lawsuit.
"This was essential because bidders interested in buying the NKSFB business certainly could be interested in buying the entire public entity, Focus," it stated. "The last thing [the management company] wanted to do was share information with Goldman and Focus that they could use to sell off just NKSFB as part of a separate deal for Focus, as such a sale would negatively impact the attractiveness of [the management company] as an acquisition target. Unfortunately, that is exactly what happened."
Over the next several months, the parties spoke with 15 potential suitors and heard from another eight to 10 expressing interest, Segal said. Unbeknownst to him and his partners, Focus was moving forward with its own talks toward a potential sale.
Five bids that amounted to roughly 20% of the purchase price of Focus ultimately came in for NKSFB, according to Segal. He argues that the other negotiations and
"Focus secretly engaged Goldman as its investment banker for the sole and only purpose of selling the entire company of Focus, including the NKSFB business, and Focus and Goldman both concealed this fact from [the management company]," according to the lawsuit.
"On February 2, 2023, [the management company] was shocked to learn that Focus and Goldman had been deceitful from the outset," it continued. "[The management company] learned via press release that Focus had already entered an exclusivity agreement with CD&R to negotiate terms for an agreement for CD&R to acquire Focus. Such a deal would necessarily involve acquiring NKSFB as well — the very situation that Goldman and Focus said would not happen, could not happen and that served as the impetus behind the carefully negotiated protections in the [non-disclosure agreement]."
The filing of the lawsuit in Los Angeles County court included a series of email exchanges and letters between Segal and Focus officials including General Counsel Russell McGranahan and co-founder Lenny Chang. One email last month from Goldman's head of the Financial Institutions Group, Pat Fels, informed Segal and the Focus officials that the NKSFB bidders who had spoken to the investment bankers had "indicated that they are prepared to move forward into the next round of the process and are standing by." Segal had written two days earlier that an "amicable meeting" between NKSFB and Focus was no longer possible, though.
"Of course you are supportive of the current process, without a deal a nuclear war will happen," Segal said in the email. "Of course Goldman wants this to happen because their breaches and conflicts will result in hundreds of millions of dollars of damages due to the lack of this process happening both because of your conflicted actions since Nov. 1 and because of your solicitations of buyers beginning end of December in order to try and overbid CD&R."
In the interview, Segal said that the words "nuclear war" alluded to earlier comments from a top Goldman executive urging him not to "go nuclear on us" by suing the firm.
"I hope there's a way to work it out and find some amicable way to do that," Segal said. "The world should know this story."
