Silvercrest is much smaller than Boston Private, or Focus for that matter. The firm has about 7.8 million shares outstanding and recently traded at about $13 a share. Many believe the only reason Silvercrest went public is that its former major shareholder, Microsoft co-founder Paul Allen, wanted to unload the investment and focus on other holdings like the Seattle Seahawks and Portland Trail Blazers.
Silvercrest principals reportedly were equally eager to part ways with Allen and other private equity investors. With a market capitalization of just over $100 million, its stock trades about 59,000 shares a day, or 0.76% of its shares outstanding.
There is no guarantee that Focus will file an S-1 or, if it does, that its subsequent IPO will be successful. The IPO market has been fixated on social media and biotech companies, so a business model based on consolidating older advisors approaching retirement and looking to take some chips off the table may offer little sex appeal.
Over the long term, the success of Focus and other consolidators will hinge on their ability to grow each firm organically—not through acquisitions. Focus firms like Buckingham, Colony and LLBH have achieved impressive internal growth, but it’s not clear what the experience is across the entire network. If Focus becomes public, that picture will become clearer. Going forward, it will also be interesting to see if Focus uses stock options and other incentives to reward RIAs based on performance.
One of the problems NFP encountered was that after advisors sold a majority interest in their businesses, many started to coast along or, in a few cases, retire on the job. Eventually short sellers at hedge funds spotted the trend and made a killing as NFP shares dropped from over $50 a share to low single digits.
With more than $700 million in debt and preferred stock, the consolidator would need an enterprise value (combined equity and debt) of more than $1 billion to make the public offering worth its while. Ideally, if Focus could get a market cap (of equity alone) of $500 million, that would permit it to reconfigure its balance sheet, reduce its debt and especially its expensive preferred stock. Commanding that kind of valuation could be a very tall order.