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Industry Spotlight > Mergers and Acquisitions

PE Firm to Buy Focus Financial at $7B Valuation

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What You Need to Know

  • Focus Financial has decided to accept private equity firm Clayton Dubilier & Rice’s offer to acquire it.
  • Focus will be acquired by affiliates of CD&R in an all-cash transaction valued at $53 per share.

Focus Financial Partners said Monday morning that it had decided to accept private equity firm Clayton Dubilier & Rice’s offer to acquire it, saying the companies entered into a definitive agreement for Focus to be acquired by affiliates of CD&R in an all-cash transaction valued at $53 per share, an enterprise value of more than $7 billion.

Focus announced early this month it was mulling the offer, saying the suggested per-share price represented a 36% premium to its 60-day volume-weighted average price at the close of trading one day earlier, on Feb 1, and a 48% premium to its closing stock price on Dec. 28.

The firm, which staged its initial public offering in July 2018, will no longer be a publicly traded company if the transaction is consummated.

On Nov. 1, Focus’ board of directors formed a committee to review CD&R’s initial nonbinding offer and to explore alternative deals. The committee told its financial advisors “to broaden their outreach and contact other potential bidders regarding interest in a definitive transaction” on Dec. 28, the firm explained Feb. 2 in a news release.

Significance of the Deal

“What is most significant is that in 4.5 years their stock price was pretty much the same as their IPO price,” Daniel B. Seivert, CEO and managing partner of Echelon Wealth Partners, told ThinkAdvisor by email on Monday. “It had pricing as low as 17 and as high as 68 but as of the beginning of the end of 2022 (before the go private announcement) it was very close to the IPO price. During this same period of time the S&P 500 was up 34%.”

But he said: “During that time Focus did a significant number of deals, enjoyed a huge tailwind in the markets, and made lots of progress on the corporate development side, yet analysts and investors did not believe any of that added any value on net. The fact that CD&R came along and paid a 35%-plus premium is tremendous positive news for the owners of Focus stock.”

After all, that means the Focus ”pre-IPO shareholder enjoyed a significant liquidity premium as the company went public, and if they stayed in they can now enjoy a significant ‘take-out premium,’” he said. “It is an unusual story of developing $7BN in enterprise value but the bottom line is that is how much [they] have developed since their founding, which is significant.”

He added: “How that money is split between the PE partners, management, and the advisor that sold to the company begs the question of ‘what is a fair split given their relative contributions?’”

Meanwhile, as David DeVoe, CEO and founder of DeVoe & Co., pointed out: Focus is “trading below the range that PE firms are paying for smaller privately held consolidators. Focus’ relatively compressed valuation, yet strong position in a strong industry, creates a compelling case for interested private equity firms with capital to invest.”

DeVoe called that “another data point demonstrating the interest of private equity (aka ‘smart money’) in the independent model as the best way to support the wealth needs of U.S. families.”

He told ThinkAdvisor: “The independent wealth management space is vibrant and has the potential to grow at an accelerated rate. Private equity sees the value, and continues to vote for the independent wealth management model with their wallet. Public companies have greater constraints related to debt ratios than privately held firms. This transaction could likely yield more capital for the organization to become more acquisitive.”

Deal Offers ‘Substantial Value’

The proposed transaction “delivers substantial value to Focus’ stockholders,” Focus said in a news release on Monday.

Funds managed by Stone Point Capital agreed to retain a portion of their investment in Focus and provide new equity financing as part of the proposed transaction, according to Focus.

The special committee of the Focus board of directors unanimously determined the transaction was “fair to and in the best interests of Focus and its unaffiliated stockholders,” the firm said Monday.

The proposed transaction, however, is subject to a non-waivable approval of holders of a majority in the voting power of the outstanding shares of common stock held by Focus’ disinterested stockholders and provides for a 40-day “go-shop” period expiring at 11:59 p.m. Eastern time on April 8.

That, Focus said, allows the special committee and its advisors to actively initiate, solicit and consider alternative acquisition proposals from third parties, with a 10-day extension for parties submitting acquisition proposals during the initial 40-day period that are reasonably likely to lead to a better proposal.

Focus, if approved by the special committee, will also have the right to terminate the merger deal to enter into a superior proposal subject to the terms and conditions of the merger agreement, it said.

Focus warned: “There can be no assurance that this ‘go-shop’ will result in a superior proposal, and Focus does not intend to disclose developments with respect to the solicitation process unless and until it determines such disclosure is appropriate or otherwise required.”

‘Advantageous Competitive Positioning’

CD&R and Stone Point are making the investments in Focus due to “their conviction in Focus’ advantageous competitive positioning in a multi-trillion dollar, global industry,” according to Focus.

It cited its 90 partner advisory firms’ high-net-worth and ultra-high-net worth client base, its business model allowing those firms to maintain their identities, its global reach and its value-added services for the firms it partners with.

“This transaction represents an important evolution in the resources we will have to invest, enabling us to increase the value we deliver to our partners and their clients,” according to Rudy Adolf, Focus founder, CEO and chairman.

“We are enthusiastic about the opportunity to partner with Focus to help grow and develop its exceptional partner firm network,” CD&R partner Dan Glaser said in a statement.

CD&R partner David Winokur added: “Focus represents an outstanding collection of leading RIAs and business managers, and our investment is predicated on having greater financial and operating flexibility as a private company in order to support and drive collaboration amongst these entrepreneurial partners.”

Jefferies and Goldman Sachs & Co. are serving as financial advisors and Potter Anderson & Corroon is serving as legal counsel to the special committee. Vinson & Elkins is serving as legal counsel to Focus.

Moelis & Co., RBC Capital Markets, Truist Securities, BofA Securities, BMO Capital Markets, Citizens Capital Markets, Fifth Third Securities and MUFG are serving as financial advisors to CD&R and Stone Point.

Kirkland & Ellis and Debevoise & Plimpton are serving as legal counsel to CD&R on the transaction.

(Pictured: Rudy Adolf, CEO, chairman and founder of Focus Financial)


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