When The Colony Group, a Boston-based registered investment advisor, announced last fall that it would sell itself to RIA aggregator Focus Financial Partners, Colony CEO Michael Nathanson said his firm was looking to grow and was “thinking big.”
Nathanson is making good on his ambition. This morning Focus and Colony said that Mintz Levin Financial Advisors, another Boston financial practice with $1.1 billion in AUM, would merge with Colony, boosting its assets to about $2.5 billion.
“It sounds like things went according to plan,” said Dan Inveen, principal at FA Insight, a consultancy in Tacoma, Wash. who follows the M&A market. “It certainly is a significant deal in terms of the size and the reputations of both of the firms.”
Focus CEO Rudy Adolf said Focus will finance the deal with cash and Focus equity. Exact terms of the deal were not disclosed; Adolf said it had been signed and would close shortly. Mintz Levin will move out of the offices of its partner, the law firm of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo P.C., and into Colony’s offices a mile down the street, where it will adopt Colony’s name.
The deal appears to work for all parties involved. Focus, which closed on $320 million in new financing this year and is the subject of media reports about its possible sale by its own venture capital partner (more on that in a moment), now has more than 100 partners and assets under management and advisory of $50 billion.
That’s rapid growth for an aggregator that formed in 2006. Mintz Levin is its third deal so far this year; it closed on eight in 2011.
Mintz Levin gets a succession plan for partners Robert Glovsky and Cary Geller. Glovsky, a former chairman of the CFP Board of Standards, said neither partner has plans to leave shortly but they wanted to provide for such a move in the future. (Glovsky will be vice chairman at Colony, and Geller executive director; both will be on the firm’s executive board.)
The practice has 370 clients and 18 staff, Glovsky said. An average MLFA client has about $3 million in investible assets, and the firm specializes in serving HNW individuals with assets of up to $30 million. Glovsky said both firms share similar traits—“We put financial planning first and investments as part of the solutions to the planning needs,” he said.
He’s known Nathanson for 15 years. They met when Glovsky ran a financial planning program at Boston University and Nathanson agreed to serve as an advisor to the program; they also worked together on the Fidelity Advisor Council.
Colony has about 800 clients, chiefly individuals and families, with average assets ranging from $2 million to $10 million, Nathanson said. The addition of MLFA provides Colony with scale that can be put to certain uses, he said, such as getting good deals on CRM and portfolio management technology. The savings can also help attract and retain talented staff.
“By being a larger firm with more resources, I think we have more credibility on the street,” Nathanson said.
Inveen noted that two firms in the same neighborhood enjoy certain competitive advantages when they merge.
“You establish a bigger footprint in that market and become an even more dominant player in the local market,” he said.
Focus was in the news this month when Financial Advisor magazine quoted unnamed sources as saying that Summit Partners, the VC firm that has staked Focus, had hired Goldman Sachs to find a buyer for the aggregator.
A spokesperson at Summit didn’t return a call for comment. “We never comment on these types of rumors,” Adolf said. However, he denied the sources’ assertion in the article that Focus had $175 million in debt and $80 million in preferred stock.
Focus is profitable and “very strong financially,” he said, not offering specifics but noting the $320 million credit facility that Focus obtained from a bank consortium this year.
“In days like this, you’re not getting a $320 million credit facility unless you’re very, very profitable and you have a track record of financial success,” he said. “We will keep doing what we have been doing over the last six years for, hopefully, many many, more years successfully.
“We certainly don’t have an end date. There’s really no natural limit to the growth of our business model,” he said. “We are by far the largest player in this industry, but we are the market leader in a $2.3 trillion industry. … There’s a lot of room to grow for many years ahead of us.”