IFR International - 21.07.2018

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ENDAVA IPO FOLLOWS RICH TRADITION

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AMERICAS

UNITED STATES

IPOS DOMINATE JULY DEAL MIX

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SECURITYûDEVICES    

EQUITIES AMERICAS

Focus Financial zeroes in on

US$630m IPO

„ US Consolidation of financial advisers underpins growth

Barely 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