A registered investment advisory firm acquirer
Focus Financial Partners
The board of New York-based Focus formed a special committee on Nov. 1 to consider Clayton, Dubilier's offer and potential alternatives. It owns 87 "partner" RIAs after
The bid represents a 36% premium on the firm's weighted average price over the last two months at market close on Feb. 1 and a 48% hike over the value at the end of trading on Dec. 28. That day, the committee at Focus gave its investment bankers from Jefferies and Goldman Sachs permission to engage other bidders, according to a press release on the negotiations.
The bid by Clayton, Dubilier stands as the firm's "best and final" offer to Focus, "with the understanding that there [will] be no further price negotiations," the firms said in the release.
"Negotiations regarding definitive terms and agreements are ongoing, and there is no certainty that final terms of any transaction will be agreed upon or, if agreed upon, completed," the document stated. "Any transaction would be subject to the completion of due diligence, board and stockholder approval, regulatory approvals and other customary conditions. Focus will cease to be a publicly traded company if such a transaction is consummated."
Focus added that its executives would decline to comment further on the potential deal until the approval of any transaction.
Representatives for Clayton, Dubilier declined to comment. Stone Point didn't immediately respond to a phone call about the announcement.
A "compressed valuation" for Focus in the context of its "strong position in a strong industry" makes it attractive to private equity investors, according to David DeVoe of
"From a multiple perspective, the company is trading below the range that private equity firms are paying for smaller privately held consolidators," DeVoe said in an email. "The independent wealth management space is active and strong. The growth potential is attractive. Private equity firms see the opportunity and continue to invest in growth-oriented firms."
Part of the reason for the lower valuations among stock investors may come from the variation among the partner RIAs at Focus in terms of their expansion and profitability, according to Brent Brodeski, CEO of fellow advisory acquirer firm
That factor, combined with a larger list of competitors in recent years and the fact that rising interest rates are making capital more expensive, could be constraining the value of the firm among investors, Brodeski said. His firm has hired a new head of M&A to keep up with a flow of deals that will boost the number of employees to as many as 430 by the middle of the year from only 225 at the beginning of last year.
The Clayton, Dubilier deal "could be an interesting way for Focus to unleash some of the value" that investors haven't recognized as a publicly traded firm, Brodeski said.
"The stock market has not really been favorable to them," he said. "When you look at the underlying firms they own and think of what those firms in aggregate would be worth according to private equity or privately held standards, clearly their stock is inexpensive."
Focus might never reach its highest potential value as a publicly traded firm, agreed Matt Regan, the president of Wealthcare Advisory Partners, a Richmond, Virginia-based RIA that's owned by private equity firm NewSpring Holdings. Such investors are targeting the recurring revenue, sizable profits and an industry that remains highly fragmented, Regan said.
"That's why private equity licks its chops about this space," he said, noting a contrast with stock investors examining Focus. "As a growth investment, it doesn't have the rocket fuel like a tech stock has. It does have those very, very reliable cash flows and very wide margins, and that's what private equity investors really like."
Under the leadership of CEO Rudy Adolf, Focus and other competitors among RIA platforms and aggregators such as Captrust, Mercer Advisors, Dynasty Financial Partners and Beacon Pointe Advisors have fueled
Since going public, though, the profits at Focus have lagged behind those of much larger publicly traded firms that are making their own deals and bulking up their RIAs, too. Amid the slumping stock prices in 2022 and a thinning market for IPOs, Dynasty shelved its plans to go public and
In
"We are frequently asked by investors whether current market conditions are impacting M&A activity," Adolf said on a Nov. 3 call with analysts,
This story has been updated from a previous version with quotes from experts and more context from the company's last earnings statement.
