Fresh from raising $565 million through its July stock sale, Focus Financial Partners sees a marketplace of independent financial advisory firms that is ripe for the pickings.
During the company's first earnings call Wednesday since going public on July 30, Focus' chairman and CEO Rudy Adolf said even with 58 partner firms and more than 2,800 partners and employees, Focus "has barely scratched the surface of the opportunity."
"In the U.S. alone, we believe there are 500 suitable partners that could join us," he said. "And there are another 5,000 firms that could be a good fit for existing partner firms over time."
The growth model of the 12-year-old business that has expanded by acquiring all or parts of registered investment advisory firms, was boosted by the initial public offering, which elevated the profile of Focus even though its
IPO price came in below expectations.
"With the power and credibility of the successful public offering, doors will open, and it will add to our strong track record and reputation," Mr. Adolf said. "This is the perfect industry, and we love this space. We have probably the most robust pipeline I've ever seen."
The $33
IPO price was below the target range of $35 to $39 per share, but the stock has since climbed to around $41.
Of the $565 million raised through the stock sale, $390 million was used to pay down debt, according to the
earnings report for the quarter ended June 30.
Mr. Adolf said the remaining cash, plus access to a $650 million line of credit, leaves plenty of money to continue growing through acquisitions and supporting sub acquisitions by partner firms.
In 2017, Focus acquired $44.2 million worth of recurring cash flow, also known as acquired base earnings. In just the first six months of this year, the company had acquired $37.8 million in cash flow.
Focus reported second-quarter revenue of $231.4 million, which was up 47.2% from the same period a year ago. It also reported a net loss of $7.7 million, compared with a $5.2 million loss from the same quarter last year.
During the second quarter, Focus added $23.8 million in acquired base earnings through the addition of three new partner firms: Bartlett Wealth Management, Campbell Deegan Financial, and Nigro Karlin Segal Feldstein & Bolno.
On Tuesday, Focus announced the
sub acquisition of AFAM Capital by partner firm Kovitz Investment Group. As of 2017, AFAM had $950.9 million assets under management, according to its ADV form filed with the Securities and Exchange Commission. Kovitz had $3.3 billion in AUM, according to its ADV form.
These kinds of sub acquisitions, which are often at least partially financed by Focus, are a large part of the company's growth strategy, Mr. Adolf said.
He added that two-thirds of the Focus partner firms have already done at least one acquisition, and that Focus typically sees between 15 and 20 partner firm acquisition per year.
"We are very well positioned with the cash we have available to continue the execution of our strategy," Mr. Adolf said. "We are just in a really good spot and we like what we see."
