Focus Financial is going private after being acquired by private equity firm Clayton, Dubilier & Rice (CD&R) in an all-cash transaction, with an enterprise value totaling more than $7 billion and stockholders set to receive $53 per share.
The RIA partnership agreed to a limited exclusivity agreement with CD&R earlier this month after the PE firm made an offer to further hash out the terms. Focus founder, CEO and Chairman Rudy Adolf called the move an “important evolution” in Focus’ ability to aid clients.
“We are uniquely positioned to capitalize on industry trends while offering the expertise and resources that help our partners provide differentiated service to their clients," he said.
As a result of the deal, CD&R will cash out Focus’ stockholders, barring its largest current investor, Stone Point Capital, which agreed to “retain a portion of their investment” in the company and cough up equity financing for the deal.
Focus argued the $53 in cash per share was a “substantial value” for Focus stockholders, representing a 36% premium for the company’s 60-day average price as of one day before the exclusivity agreement was announced earlier this month.
The deal includes a 40-day “go-shop” provision, enabling the firm to continue to seek out alternative options despite the purchase agreement (this period ends April 8). CD&R first made an offer back in November, leading Focus’ board of directors to form a committee to consider it.
In the exclusivity agreement, CD&R clarified that $53 would be its “best and final” offer, though several stockholders told WealthManagement.com earlier this month that the price seemed too low. Some questioned how diligently Focus executives were working to find a better deal and whether shareholders’ concerns were being represented in negotiations.
One stockholder said they were frustrated by Stone Point’s opportunity to stay invested; if CD&R decides to take the company public with a higher valuation in several years’ time, Stone Point could benefit, but other stockholders would be left with the $53 per share generated from this deal.
“We feel like the price should be considerably higher, but we may have no choice,” another institutional investor told WealthManagement.com. “We can vote against the deal, of course, but it'll depend a lot on what other shareholders do.”
The acquisition marks CD&R’s first entrance into the wealth management industry, according to Brian Lauzon, managing director at InCap Group.
“They're probably not interested in owning the company forever,” he said. “Typically, five or six years is the window of opportunity. So, during those five or six years, what's the plan to make this bigger?”
The deal is expected to close sometime in Q3 2023, and a vote on approving the deal by shareholders is still pending.