Whatever the case, several other aggregators enjoyed organic growth in the 15 percent to 20 percent area in 2017. For its part, Focus appears to be addressing the issue of stagnant new client growth or even attrition. Earlier this week, it announced it had led a $28 million funding round for Smart Asset, a lead-generation data service for advisors.

Then there is the issue of revenue composition. The S-1 says the entire partnership is operating under the fiduciary model, but just under 10 percent of its revenues come from transactions and other non-recurring sources of business. Whether investors will assign the same multiple to non-recurring revenues is an open question. In the private market, buyers typically don’t.

Intriguing Accounting Concepts
Then there is the concept of adjusted EBITDA (Earnings Before Interest And Tax Plus Depreciation And Amortization). That is the lens through which Focus is asking investors to view its business model. The S-1 states that adjusted EBITDA is not defined under GAAP and does not purport to be net income or cash flow.

It entails adding back non-cash equity compensation expenses and non-cash changes on fair value of estimated contingent consideration. What that means exactly isn’t clear.

One financial expert who has examined the S-1 believes that Focus may be setting targets for certain affiliated firms. If they exceed those targets, they receive additional equity if this observer is accurate. But whether that is the case or not, one thing is clear—the non-cash equity compensation expense is dilutive to existing shareholders.

Who could be getting this non-cash equity compensation? One possibility is that Focus acquires firms in the middle of the year and promises an earn-out if business remains strong. That’s a common practice in the M&A world.

It also is widely believed that a handful of top-performing Focus firms, including Buckingham Asset Management, G.W. Wade, Coastal Bridge Advisors, The Colony Group and Joel Isaacson & Co., are generating an outsized share of the company’s top-line growth and some have wondered how Focus treats them compared to the slow growers. The filing doesn’t say whether this is a way of rewarding certain firms that exceed their targets.

One analysis concludes that under traditional cash flow analysis Focus has about $85 million to $95 million in in 2017 EBITDA. The adjusted EBITDA concept it is employing raises that figure to about $145 million, a huge increase in terms of how the aggregator is valued.

Whether IPO investors buy into the adjusted EBITDA concept could be critical in deciding whether the offering is a success or a flop.

Capital Structure And Valuation