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SECURITYûDEVICES EQUITIES AMERICASFocus Financial zeroes in on
US$630m IPO
US Consolidation of financial advisers underpins growthBarely a year after buying the business, the
Stone Point/KKR & Co-led investor group behind
FOCUS FINANCIAL PARTNERS is moving ahead with
a US$630m-plus IPO of the consolidator of
independent financial planning firms.
A syndicate led by Goldman Sachs, Bank of
America Merrill Lynch and KKR itself is looking
to sell 16.2m Focus Class A shares at US$35–
$39 each for pricing post-close on Wednesday
July 25.
Consolidators can be fraught exercises as
IPOs but Focus is touting an acquisition model
that preserves the entrepreneurial qualities
and independence – and hopefully the future
prospects – of the registered investment adviser
(RIA) firms it controls and is looking to acquire.
Focus is positioning itself as a pure-play
fiduciary wealth manager favourably positioned
to benefit from trends such as the growth
of passive management and technological
innovation, unlike many large brokerage firms
and asset managers.
Still, investors are expected to line up Focus
against comps such as Interactive Brokers,
Charles Schwab, LPL Financial and Affiliated
Managers Group.
The IPO would see Focus reduce net leverage
to below four times with a US$650m revolver
giving it dry powder for acquisitions.
The company sees 500 potential targets
in the US (and 5,000 for its partner firms) on
top of its current 56 partner firms. It also sees
opportunities to attract wirehouse advisers and
expand internationally into Canada, Australia
and the UK.ENTREPRENEURS
Central to the story is Focus’s guiding principle
that in consolidating the industry it never turns
entrepreneurs into employees.
This principle infuses the company’s
acquisition model, which leaves Focus owning
100% of the operating entities but principals with
ownership of a management company.
“In essence, we acquire a portion of the base
earnings of our partners,” founder and CEO Rudy
Adolf said in the online roadshow presentation.
“These acquired base earnings create a
preference to the Focus holding company
which is the quid pro quo for our partners’
entrepreneurial control over their businesses,
creating a high level of alignment of interests
between our partners and Focus.”
These earnings gave Focus “downside
protection”, Adolf said. Yet Focus also sees
itself as a growth company, targeting long-term
revenue and net income growth of 20%. Focus’s
compound annual revenue growth was more
than 25% from 2013 to 2017.
The IPO terms would give Focus a market cap
of about US$2.4bn and leave it with net debt
of US$600m, versus 2017 adjusted Ebitda of
US$157.8m.
Though some of the IPO proceeds are being
used to buy shares from existing investors, most
is earmarked for debt reduction.
Stone Point (33.6% voting power post-IPO)
and KKR (15%), the firms that led a US$2bn
buyout of Focus last year, are not selling any
shares in the offering.
Anthony Hughes