Focus Financial weighs $4.1 billion sale to private equity firm

PE firm Clayton Dubilier & Rice offered $53 per share for the RIA aggregator, adding fuel to the 24% rally in Focus' shares so far this year.

Shares of Focus Financial Planning jumped more than 9% in midday trading Thursday as the publicly traded RIA announced plans to sell itself to private equity investors for $53 per share, which is nearly $7 above where Focus’ stock price closed on Wednesday.

Completion of the deal, which values the RIA aggregator at $4.1 billion, would convert Focus Financial into a privately held company.

According to the announcement, Focus has entered into an exclusivity agreement for a limited period with Clayton Dubilier & Rice, a private investment firm, to engage in negotiations regarding the terms and definitive agreements under which CD&R potentially could acquire Focus for $53 per share in cash.

The Thursday morning announcement is the result of a special committee of the Focus board of directors that was formed in November to evaluate a “non-binding offer received from CD&R and to explore alternative transactions.”

The $53 CD&R offer, representing a 36% premium over Focus’ 60-day volume weighted average share price, represents the PE firm’s “best and final” offer and “it was submitted with the understanding that there would be no further price negotiations,” according to the announcement.

“This could be a seminal point in the industry that says RIA aggregators are better off privately held versus in the public markets,” said Tim Welsh, president and chief executive of Nexus Strategy.

“Also, it adds more fuel to the fire that says integration is better than aggregation when looking to build long-term value,” Welsh said.

David DeVoe, founder and chief executive of DeVoe & Co., said the combination of Focus’ “compressed valuation,” combined with the growing appeal of the wealth management space, “creates a compelling case for curious PE firms with deep pockets.”

“From a multiple perspective, Focus Financial is trading below the range that PE firms are paying for smaller privately held consolidators,” DeVoe added. “The independent wealth management space is vibrant and has the potential to grow at an accelerated rate. Private equity sees the value and continues to vote for the independent wealth management model with their wallet.”

[More: Focus Financial Partners says it’s being bought, as expected]

Focus, which went public in July 2018, has also gone through a normal series of private equity partnerships.

In June 2021, PE firm Kohlberg Kravis Roberts cashed out with a 65% gain from the point of the IPO.

Focus’ remaining private equity partner, Stone Point Capital, which sold off a portion of its ownership stake in March 2021 along with KKR as part of a secondary stock offering, still owns about 14% of the RIA’s outstanding shares.

According to the announcement, Stone Point is considering retaining a portion of its investment in Focus and providing new equity financing as part of the proposed transaction, subject to negotiation with CD&R of definitive agreements on mutually agreeable terms.

Focus representatives did not respond to a request for comment for this story.

Focus Financial’s stock price is up more than 24% since the start of the year, which compares to a 7.4% gain by the S&P 500 Index over the same period.

Last year, Focus’ shares fell by 37.5%, which compares to an 18.2% decline by the S&P 500.