Page 3 - Investment Advisor April/May 2023

04.23

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PE Firm to Buy Focus Financial at $7B Valuation

Focus Financial Partners accepted private vibrant and has the potential to grow at
equity firm Clayton Dubilier & Rice’s an accelerated rate. Private equity sees
offer to acquire it on Feb. 27, when it the value, and continues to vote for
announced that the two companies the independent wealth management
had entered into a definitive agreement model with their wallet. Public compa-
for Focus to be acquired by affiliates of nies have greater constraints related
CD&R in an all-cash transaction valued to debt ratios than privately held firms.
at $53 per share, an enterprise value of This transaction could likely yield more
more than $7 billion. capital for the organization to become
Focus announced earlier in the more acquisitive.”
month that it was mulling the offer, The special committee of the
saying the suggested per-share price Focus board of directors unanimously
represented a 36% premium to its determined the transaction was “fair
60-day volume-weighted average price to and in the best interests of Focus
at the close of trading one day earlier, on and its unaffiliated stockholders,” the
Feb 1, and a 48% premium to its clos- firm said in late February. The pro-
ing stock price on Dec. 28. The firm, posed transaction, however, is subject
which staged its initial public offering After all, that means the Focus “pre-IPO to a non-waivable approval of hold-
in July 2018, will no longer be a pub- shareholder enjoyed a significant liquidity ers of a majority in the voting power
licly traded company if the transaction premium as the company went public, of the outstanding shares of common
is consummated. and if they stayed in they can now enjoy stock held by Focus’ disinterested
“What is most significant is that in a significant ‘take-out premium,’” he stockholders and provides for a 40-day
4.5 years their stock price was pretty said. “It is an unusual story of developing “go-shop” period expiring at 11:59 p.m.
much the same as their IPO price,” $7 [billion] in enterprise value but the Eastern time on April 8.
Daniel B. Seivert, CEO and managing bottom line is that is how much [they] CD&R and Stone Point are making
partner of Echelon Wealth Partners, told have developed since their founding, the investments in Focus due to “their
ThinkAdvisor by email on Monday. “It had which is significant.” conviction in Focus’ advantageous
pricing as low as 17 and as high as 68 but Meanwhile, as David DeVoe, CEO and competitive positioning in a multi-trillion
as of the beginning of the end of 2022 founder of DeVoe & Co., pointed out: dollar, global industry,” accord-
(before the go private announcement) it Focus is “trading below the range that ing to Focus. It cited its 90 partner
was very close to the IPO price. During PE firms are paying for smaller privately advisory firms’ high-net-worth and
this same period of time the S&P 500 held consolidators. Focus’ relatively com- ultra-high- net-worth client base, its
was up 34%.” pressed valuation, yet strong position in business model allowing those firms to
But he said: “During that time Focus a strong industry, creates a compelling maintain their identities, its global reach
did a significant number of deals, enjoyed case for interested private equity firms and its value-added services for the firms
a huge tailwind in the markets, and made with capital to invest.” it partners with.
lots of progress on the corporate devel- DeVoe called that “another data point “This transaction represents an
opment side, yet analysts and investors demonstrating the interest of private important evolution in the resources
did not believe any of that added any equity (aka ‘smart money’) in the inde- we will have to invest, enabling us to
value on net. The fact that CD&R came
pendent model as the best way to sup-
increase the value we deliver to our
Adobe Stock along and paid a 35%-plus premium is port the wealth needs of U.S. families.” partners and their clients,” according
tremendous positive news for the owners
He told ThinkAdvisor: “The inde-
to Rudy Adolf, Focus founder, CEO and
chairman. —Jeff Berman
pendent wealth management space is
of Focus stock.”
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