Focus Financial Partners obtained a $400 million credit facility on Tuesday, just in time for the company’s eighth birthday. The deal allows the firm to do more deals in the coming months, as well as increase its support staff and lending capabilities for partner firms already with Focus.
“We expect robust deal activity in 2014, and this increase in financing allows us to accelerate the growth of Focus and our partner firms,” says CEO Rudy Adolf.Last year was one of the firm’s most successful years, Adolf says, noting that he has even higher hopes for 2014.
Despite M&A activity in the RIA space being down slightly overall, Focus Financial completed 10 acquisitions in 2013 and nine deals in 2012. Historically, the firm completes 8-12 deals a year, Adolf says. Focus does not disclose total assets for the deals.
With client assets hovering at $70 billion today, Focus has come a long way from the $3 billion it started with in 2006. Back then, Adolf and his staff spent hours calling firms and talking up the opportunity. Now Adolf says about third of Focus’ prospects approach the firm after reading or hearing about it, a third come from partner firm referrals and the final third are found through Focus’ M&A team research and then approached.
“There’s not many deep-pocketed buyers out there,” Adolf says of the industry’s slump. “We have one of the deepest pools of capital.” Almost every Focus deal is a mix of cash and stock, giving RIAs an attractive option, Adolf says. Focus obtains a partial equity ownership in its acquisition targets, giving Focus some “skin in the game” and allowing the firm to sit on the same side of the table as the advisors, he adds.
With capital acting as a constraining factor in many cases—particularly in regards to succession-related transfers and advisor-driven acquisitions—banks have become more active as a class of buyers.
But banks pose their own set of problems, Adolf notes, saying that while they are good product distributors, banks provide a difficult ownership transition for RIAs. “It’s a tough conversation to have with clients,” Adolf says because advisors are basically selling to the entity they marketed against throughout their career.
Tuesday’s deal—supported by a consortium including Bank of America, J.P. Morgan, Fifth Third Bank, Comerica Bank and others—nearly doubled the firm’s previous credit deal that closed in 2012. Focus also can expand the credit facility by an additional $150 million.
The $550 million deal is available to all Focus firms, providing support for succession planning, mergers and business growth. “If it’s good for the advisor, it’s good for us,” Adolf says.