Focus Financial is "the only game in town" for RIA M&A, says CEO Rudy Adolf

Mr. Adolf likes what he sees at Focus, questions the strategy of competition

Nov 7, 2019 @ 2:19 pm

By Bruce Kelly

Rudy Adolf takes a look around the red-hot market for RIA acquisitions and he likes the opportunities facing Focus Financial, one of the most senior and well established buyers of RIAs.

Mr. Adolf, the founder and CEO of Focus Financial, acknowledges that the competition to buy RIAs has intensified of late, but his firm's position as a buyer of wealth management businesses has solidified.

To that end, Focus Financial in 2019 has so far added $35.1 million in earnings through acquisition of six partner firms, according to a company presentation posted along with its earnings, which were released Thursday morning.

"What makes us so competitive is ultimately the core value proposition that we have," said Mr. Adolf, who made his comments Thursday morning during a call with analysts.

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Successful, established financial advisers looking to sell their practices want to protect firm culture and independence and don't want to be part of a large, monolithic entity, he said. Add in Focus Financial's value-added programs and access to capital, and the choice is clear, he said.

"Focus is the only game in town," he said. "There is nobody else who has this value proposition."

During his comments with analysts, Mr. Adolf also took a swipe at the competition, namely private equity funds, that have been chasing and acquiring RIAs, and also driving up the prices for firms like Focus Financial.

"Private equity has significantly increased its presence in this industry, but they are temporary capital," he said.

That's important for RIAs working the ultra-high net worth space because those advisers' clients don't want to be part of a churn of RIA transactions, he said. In such instances, financial advisers will be asking clients repeatedly to sign off on client agreements, he said, leading to difficult interactions.

"You have to be able to go to your clients and ask them for their approval and say, can you please sign the client agreement," Mr. Adolf said. "But in three or four years I will be coming back because the private equity firm X is going to sell me again. And they will be in control of this transaction, not me."

"That's very difficult to do in the high net worth and ultra-high net worth space," he added.

Focus Financial has had private equity investors, including Stone Point Capital and KKR, in the past before its 2018 initial public offering. When asked about Mr. Adolf's comments about private equity, a spokesperson for the firm, Tina Madon, said the firm had no comment.

Meanwhile, Focus Financial intends to start paring down its level of debt starting in 2020, Mr. Adolf said, aiming for a gradual de-levering next year.

The firm has currently a net leverage ratio of 4.3 times. That ratio measures a company's net debt to EBITDA, or earnings before interest, taxes, depreciation, and amortization, essentially a measure the ratio of a business' debt to earnings.

Going forward, Focus Financial intends to operate at a net leverage ratio of 3.5 times to 4.5 times, which the company says will provide flexibility to pursue growth strategy.

Shares of Focus Financial shot up after the release of its earnings and were trading at 26.05 Thursday afternoon, an increase of more than 9.5% through 1:30.


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