Focus Financial’s PE Backers Eye $323 Million Pay Day with Stock Sale
Focus Financial Partners’ private equity backers are looking to reap some rewards from their 2017 investment in the New York City-based RIA financier, which they helped take public in July 2018.
The private equity-backers’ shares are worth roughly $323 million–prior to fees and underwriting costs–based on the set price of $48 per share.
KKR and Stone Point currently own 40% of the company, which has a $3.38 billion market cap based on its price of $47.11 at 9:40 on Friday. Shares were down nearly 10% from Thursday’s closing price.
The private equity backers will also have the option to sell an additional 1,050,000 shares of Focus’ Class A common stock to the underwriters on the deal within 30 days, according to the release.
As part of the 7 million offering, some Focus employees and partner firms will also be cashing out as Focus itself is selling 262,306 shares on behalf of certain existing unit-holders–not including the firm’s executive officers and directors.
Focus said it expects to raise $12.1 million from this portion of the sale, after deducting underwriting discounts and before other offering expenses. The offering is expected to close on March 2.
None of the funds will be used for Focus’ M&A activity. Chief Executive Rudy Adolf on the company’s fourth-quarter earnings call last week touted a billion-dollar war chest to continue doing deals in 2021. He shrugged off the firm’s growing debt and said it was in a “rock-solid position” to continue its aggressive buying.
Underscoring that appetite, Focus on Thursday said it will add Prairie Capital Management, a $5 billion-asset registered investment advisor, as a new partner firm and merge another RIA, Matheys Lane Capital Management, into an existing partner firm.
The addition of Kansas City, MO-based Prairie would bring Focus’ partner firm count to 73. Financial terms of the transaction, which is expected to close in the second quarter of 2021, were not disclosed.
Focus generally buys the assets and a percentage of the cash flows of RIAs in partner firm transactions, rather than buying the companies outright. Prairie is the second partner firm addition that Focus has announced in 2021.
Prairie, which was founded in 1995, serves ultra-high net worth clients, family offices, foundations, endowments and other institutions. About $1.5 billion of its $5 billion in assets under management are discretionary, according to its June 2020 Form ADV filing.
“We are excited to be partnering with Focus as their track record of providing extensive resources and strategic advice to leading RIAs serving a similar clientele will be invaluable to Prairie,” Brian Kaufman, a founder and managing director of Prairie, said in a prepared statement.
Prairie had previously been owned by Kansas City bank UMB Financial Corp., which acquired the RIA in 2010 for $26.6 million, according to news reports at the time.
Earlier on Thursday, Focus announced that an existing partner firm, SCS Capital Management, is purchasing Matheys Lane Capital Management, a Providence, RI-based RIA managing $1.3 billion.
Matheys Lane, which serves just seven high net worth clients, according to its September 2020 Form ADV filing, will bolster Boston-based SCS Capital’s standing with family office-caliber clientele. Financial terms of the transaction, also expected to close in the second quarter of 2021, were not disclosed.
Founded in 2008 by Heather Deering Crosby, Matheys Lane has an asset minimum to begin an advisory relationship at $100 million per family group, according to its ADV. Crosby, together with chief investment officer Michael Sweeny, will join SCS Capital as managing directors.
SCS Capital joined the Focus partner network in 2017 with about $16.5 billion in assets and has since climbed to more than $22.2 billion, according to its November 2020 ADV update.
“We believe that bringing together two like-minded, client-centric firms will elevate the experience of our collective client base,” Crosby said in a prepared statement.
Crosby was previously a partner at Providence RIA Rex Capital Advisors, a vice president at J.P. Morgan Securities and a trader and banker at Goldman Sachs. Her father, Anthony W. “Tony” Deering, led real estate development firm Rouse Company and orchestrated its 2004 sale for $12.6 billion, according to his 2017 obituary in the Baltimore Sun.
The Matheys Lane deal is the first “tuck-in” merger of a smaller firm into an existing partner firm that Focus has announced in 2021. It financed 18 such deals in 2020.