A private equity firm is taking a $216 million stake in Focus Financial Partners, a partnership of independent wealth management firms founded by Rudy Adolf in 2006 that has increased client assets by nearly 18 times since then.
New York-based Focus announced today that it reached a definitive agreement for the investment from Centerbridge Capital Partners II, which had about $20 billion in capital under management as of May. After the deal's expected closing at the end of the third quarter, Focus partners and management will still retain majority ownership in the company.
Early investors in Focus, Summit Partners and Polaris Ventures, will remain shareholders. However, it is believed that Summit and Polaris were owed about $100 million in debt and owned about $80 million in equity with preferential rights, and that Centerbridge is buying out a big chunk of their debt and equity positions.
Focus CEO Rudy Adolf said the Centerbridge investment created "an opportunity to create liquidity for all shareholders," including Summit, Polaris and advisor/shareholders in the Focus network. "Focus partners can take some [money] off the table," he said.
While an initial public offering remains a possibility, Adolf noted that the Centerbridge investment demonstrates there are other avenues "to find liquidity." Adolf added that Focus' pipeline of new potential acquisitions remained active. "Stay tuned," he said
Adolf said that the transaction makes Centerbridge the largest minority equity shareholder. Another source estimated that Summit earned about 12% on its investment over seven years, while Polaris earned about 18% over three years. Neither figure could be confirmed. Returns on that scale sound great in a zero-interest rate era but they probably are far lower than a private equity-venture capital firm like Summit had hoped for when they made their initial investment in 2006. That was before the financial crisis intervened.
New York-based Centerbridge focuses on private equity and distressed security investments and has announced other big deals this year. In April, Centerbridge said it would take P.F. Chang's China Bistro private in a $1.1 billion deal. In June, it bought National RV Communities, an owner and operator of 61 destination RV resorts and senior manufactured housing communities.
The growth potential of wealth management and of Focus itself brought Centerbridge's investment in the company. Since it was founded in 2006, Focus has added numerous registered investment advisory and wirehouse teams, including 10 over the last year. Today the firm has $62 billion in client assets and more than $250 million in revenue.
“The independent, RIA industry is a growing $3.2 trillion market that continues to attract fiduciary-minded wealth managers,” Adolf said. "This investment adds to our deep pool of available capital as we continue to work closely with our partner firms to support their own growth initiatives. Most importantly, Centerbridge’s investment creates liquidity for many of our shareholders at an attractive return.”
Matthew Kabaker, senior managing director at Centerbridge, said Focus has assembled an exceptional group of partner firms across the country dedicated to providing independent, high-quality advice to their clients. He added that Focus "has a strong track record, first-class management team, and a well-developed infrastructure which position it for further expansion."