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Focus Financial CEO Rudy Adolf
Focus Financial CEO Rudy Adolf

Focus Has $1B of Dry Powder as It Looks Globally

CEO Rudy Adolf said the firm has $1 billion in firepower as it looks to expand its global footprint through Connectus, its new in-house shared services model.

Focus Financial Partners closed out one of its best years for mergers and acquisitions with a total of 25 transactions in 2020—including seven new partner firms and 18 mergers on behalf of its partners.

On the firm’s fourth quarter 2020 earnings call, Focus Chairman, Founder and CEO Rudy Adolf said he expects 2021 to be an exceptional M&A year, and the firm has about $1 billion to invest in deals over time between its unfunded revolver, cash on hand and cash flow generation.

“2020 was a year in which the value of prudent fiduciary advice was especially apparent—the finest hour for our industry as a whole,” Adolf said.

So far this year, Focus has already closed on one new partner firm, Hill Investment Group, and its new Connectus Wealth Advisers business, the firm’s in-house RIA with a shared services model, added a wealth management firm in the U.K. Adolf said the firm is about to close on another transaction shortly, an RIA firm with about $5 billion in client assets.  

On the earnings call, senior executives outlined plans to expand globally via its Connectus model. Connectus launched in December with the acquisitions of three Australian RIAs: Sydney-based Brady & Associates Group; Link Financial Services in Caulfield North, Victoria; and Westwood Group in Brisbane. And just this week, Connectus announced the launch of its Excelerate program, a business development program for its partner firms.

“Connectus gives us a third acquisition model, further expanding our addressable market both in the U.S. and internationally,” said Jim Shanahan, Focus’s chief financial officer. “The opportunity set is considerable in Australia, Canada and the U.K., the three countries where we’ve focused our expansion efforts.”

Shanahan said there’s approximately $1.7 trillion in client assets managed by 100,000 advisors in Canada. In Australia, 25,000 advisors manage about $600 billion.

Both Connectus and Excelerate broaden the firm’s M&A footprint, Adolf said.

“In so many ways, Connectus fills in the gap between direct holding company deals, which we’ve done since day one, and merger transactions, which is always the largest number of deals that we did—last year it was 18,” he said. “We believe this is probably the first time where a program has been launched on a global scale.”

Rajini Kodialam, co-founder and chief operating officer of Focus, said Connectus’ shared services model will help advisors be more efficient and likely create additional revenue.

“Connectus certainly expands the market for us because it caters to the needs of an advisor base that is asking for something different than what our direct model and our mergers offer,” she said. “It’s a hybrid.”

Of the 10 partner firms that completed a transaction in 2020, three completed their first-ever merger, Adolf said. Over 50% of Focus’ 71 partner firms have completed at least one merger since joining Focus, and 20% have completed three or more.

In the fourth quarter alone, the firm closed on five partner firms and 10 mergers.

The firm hasn’t reported its total assets under management in a while, but Adolf was able to say on the call it’s now at $250 billion. Focus still aims to reach revenues of $3.5 billion and 100 partner firms by 2025.

Fourth quarter total revenues were $379.7 million, up 11.6% from the year-ago quarter, due to better-than-expected family office–type revenue, associated with clients in the entertainment industry; favorable market conditions; and nonrecurring revenues associated with client activities and incentive fees earned by certain partner firms, Shanahan said.

Focus reported fourth quarter adjusted EBITDA of $90.7 million, 9.3% higher than the prior-year period. Adjusted net income was 72 cents a share, up 14.3% compared with the prior-year period.

2020 revenues were a record $1.36 billion, up 11.7% from 2019, driven in part by an organic growth rate of 7%. Adjusted EBITDA for the year was $321.8 million, 19.2% higher than a year ago.

Adolf said 2020 was an unusual year for M&A activity, with many firms buying at double or even triple the historic multiples.

“Last year we called it, internally, the ‘year of the drunken sailors,’” he said. “We would never do this to our shareholders. Our discipline speaks for itself.”

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