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Focus Revenues Grow Nearly 4% Over Past Year on M&A Activity

Focus attributes the growth to three RIA acquisitions as well as 15 subacquisitions it made on behalf of its partner firms over the past year.  

Focus Financial Partners’ acquisition-based growth strategy continued to fuel its financial results, as the RIA acquirer reported second quarter revenues of $313.3 million, up 3.8% year over year but down almost 8% sequentially.

Focus officials attributed a “majority” of the revenue gains in the quarter to the revenue growth at three new partner firms it acquired over the past year, including Williams Jones Wealth Management, Nexus Investment Management and MEDIQ Financial Services. The growth was also attributed to 15 subacquisitions Focus made on behalf of its partner firms in the past year.

According to Focus’ 10-Q quarterly report filed this week, Williams Jones, Nexus and MEDIQ contributed $12.4 million in revenues during the second quarter.

The company’s revenue performance was more muted when its organic revenue growth rate—which is not tied to new acquisitions—is taken into consideration; its organic revenue grew just 0.3% year over year, the company said, but came out better than expected, as it had issued guidance earlier in the year that organic revenues would be down in the quarter.

Focus’ adjusted net income was up 31.7% year over year to $54.3 million, or 71 cents per share, beating analysts’ consensus expectations of 61 cents per share.

New York-based Focus, which was founded in 2004 by CEO Rudy Adolf, went public in July 2018 and has been on a multiyear merger-fueled growth spurt. The firm managed to keep its leverage ratio at 3.85% for the quarter; it had drawn criticism from analysts in the second quarter 2019, when its merger activity had pushed its leverage ratio up to 4.05%.

"Our second quarter results were a testament to the strength of our business," said Jim Shanahan, chief financial officer. "We needed a market crisis to demonstrate the performance of our model under pressure…Although COVID-19 uncertainty persisted throughout the quarter, our partner firms continued to deliver excellent service to their clients and manage their businesses well, while simultaneously positioning themselves for future growth.”

Goldman Sachs Analyst Alex Blostein maintained his Buy rating on Focus, calling the quarter “solid…against a challenging market backdrop (amid lagged billing and light M&A activity).”

He added that company officials have predicted a stronger M&A market in the second half of the year, leading to “an expected pick up of closings in 4Q20 and 1Q21,” which he said bodes well for the company’s earnings prospects in the coming year.

By 4:15 p.m. Eastern time, Focus shares were up nearly 2%.

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