Focus Financial expects good year for M&A despite tough market

Despite the tough market, Focus Financial Partners Inc. expects 2022 will be one of the company’s best years for registered investment adviser transactions.

The company has already completed 14 deals this year and has an “excellent” pipeline that includes a mix of new partners and merger opportunities, Focus Financial founder and CEO Rudy Adolf said when the company reported second quarter earnings Thursday.

Adolf cited a diverse revenue stream, cost structure and global scale as helping Focus Financial to remain resilient through the current market. The firm reported total revenue of $539.2 million in the second quarter, a 26.8% increase over the second quarter of 2021, which was driven primarily by higher wealth management fees.

“Our business is weathering the volatile market environment well,” Adolf said on a call discussing Focus Financial’s earnings.

Nearly a quarter of the firm’s Q2 revenues were not correlated to markets, such as family office services, tax fees and advisory fees, said Jim Shanahan, Focus Financial’s chief financial officer.

“We expect to be well-positioned to benefit from the growth opportunity once macro conditions improve and deliver incremental value to our shareholders,” Shanahan said in a statement.

The firm set a record for M&A transactions in 2021, and Adolf expects deal volume will increase once current market volatility subsides.

“We continue to have an excellent pipeline with a good mix of new partners and mergers.” he said.

Focus Financial recently announced a deal for Strategic Capital Advisers, a Denver-based RIA with $700 million in assets under management, that's expected to close in the second half.

Client portfolios have been affected by the markets, and Focus Financial’s 87 partner firms have spent significant time allocating assets to mitigate downside risk, Adolf said. However, these are times in the market cycle that create opportunities for client retention and referrals.  

“The investment management objectives are not about hitting home runs, but instead are tied to a holistic financial planning process,” Adolf said. “Clients are not relying on portfolios to meet short-term liquidity needs.”

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