Focus Financial Partners is reportedly preparing to file an S-1 document with the SEC as a precursor to its long-awaited plan to go public, according to industry sources.
Several sources in both the RIA world and the consolidator business said Focus executives were mentioning the IPO plans to both management executives it was recruiting and RIA firms it was negotiating with about potential investments.
As is common for companies preparing public offerings of securities, Focus executives declined comment.
If the IPO is ultimately successful, it would provide Focus with additional capital as well as a currency to accelerate its acquisitions of RIA firms. It could also pave the way for other consolidators such as Hightower to go public as well.
However, there are many questions surrounding Focus and other consolidators in the advisory space that remain unanswered: Who gets to sell their stock and when? What kind of liquidity will Focus shares have when and if it goes public? And what kind of a multiple will the financial markets assign to this consolidator?
Focus owns majority interests in some of the nation’s leading RIA firms, including the Colony Group in Boston; Buckingham Asset Management (BAM) in St. Louis; LLBH Private Wealth Management in Westport, Conn.; and Flynn Family Office in New York City. In the last two years, it has started to use these firms and others as vehicles to acquire smaller RIA units. Buckingham now has almost $6.7 billion in assets under management while the Colony Group is approaching $4 billion.
The issue of whether certain investors receive preference in the timing of when they can sell their shares was a troublesome one for at least one consolidator that went public in 2003. Apollo Global Management, which backed Jessica Bibliowicz’s National Financial Partners (NFP), was able to sell its shares almost immediately after the IPO, while most advisors affiliated with the firm were restricted for several years.
This meant that private-equity giant Apollo was able to sell NFP shares as they soared from an IPO price of $23 per share to north of $50, while many advisors were stuck and couldn’t sell their equity until years later. In some cases, the lifting of sales restrictions came after the stock price collapsed into the teens and ultimately single digits during the financial crisis.
By then, Apollo reportedly had sold more than 90 percent of its position. Madison Dearborn Partners, a Chicago-based private equity firm, ultimately took NFP private in 2013 at $25 per share, or $1.3 billion. It went public at $23 a share.
Since it was started by former McKinsey consultant Rudy Adolf and first backed in 2007 by Summit Partners, a growth-oriented private equity firm in Boston, Focus has obtained capital via additional rounds of financing from Polaris Ventures and, most recently, Centerbridge Capital Partners, which invested $216 million in July 2013. Centerbridge, which bills itself as a private equity and distressed debt investor, is believed to own about 40 percent of Focus’s equity and probably is calling the shots when it comes to decisions about the IPO.