New York-based Focus Financial Partners Inc. has acquired Harrisburg, Penn.-based Roof Advisory Group, Inc. for its firm Fort Pitt Capital Group, LLC. The price of the sub-acquisition was not disclosed. Focus is the only publicly traded RIA aggregator.
“We are excited to help facilitate Fort Pitt’s first transaction since becoming a Focus partner firm in 2015,” said Rudy Adolf, Founder, CEO and Chairman of Focus, in a statement Thursday. “Roof Advisory will help Fort Pitt increase its geographic reach in the Northeast and expand its base of talented advisors…Our ability to provide access to capital and extensive M&A expertise is instrumental in helping our partner firms broaden their capabilities and accelerate the growth of their businesses.”
Dan Seivert, CEO and managing partner of Echelon Partners, an investment bank based in Manhattan Beach, Calif., and the advisor on the deal, told WealthManagement.com that the deal “solves the succession challenge that Roof was having.”
It was “very difficult” for Jeff Roof, who founded Roof Advisory in 1998, to “do a deal internally: he has family members working in the business, and it’s hard to come up with the capital and industry experience to pull off a succession." Lots of firms in that position "are turning to third party buyers,” Seivert said.
In addition, he noted that Roof, with assets under management of $590 million, "is at a point in their development that we call ‘The Valley of Doom,’ where the firm has to acquire a lot of C-level talent – a chief investment officer, a chief marketing officer – and they’re usually expensive and hard to find. Connecting with Fort Pitt really saves on that plan.”
Most deals for Focus, he said, are not 100% sales. The seller, he said, would typically sell 60% to 70% of the equity in its business “to future participation in the buying company, so you will then want that buyer to grow as much as possible, and then have a second liquidity transaction, a partial liquidity event. That’s usually what happens.”
Adolf said on the company’s first quarter conference call in May that “we’re looking for RIA’s facing a succession event. We have substantial expertise in helping these firms successfully navigate this process. To the extent that the firm does not have that next generation of leadership in-house, we are able to identify like-minded partner firms that have the right talent to ensure continuity of advice to their clients.”
Focus is growing rapidly. Its revenues for the first quarter grew 32.5% year over year to $259.9 million. About $48.4 million, or 76% of that growth, came from “new partner firm acquisitions that closed in the 12 months ended March 31, 2019,” said James Shanahan, the company’s CFO, on the company’s first quarter earnings call on May 9. Wealth management fees rose 31.9% year over year to $58.8 million, the company reported.
DeVoe & Company, the San Francisco-based consulting firm and investment bank, reported in its quarterly RIA Dealbook Wednesday that Focus was the most active participant in M&A during the first half, with 15 transactions.
12 of Focus’ transactions in the first half and six in the second quarter were subacquisitions, and Adolf told DeVoe that subacquisitions—helping his acquired firms acquire firms of their own—were a major part of Focus’ strategy.
Speaking about the company’s M&A approach on the call, Adolf called Focus “highly selective.” He noted that Focus’ partners are “typically managed by owners who have a systematic approach for their business development and have structured their businesses to be scalable.” These firms “want to grow through M&A because they appreciate firsthand the time and expense of acquiring clients one by one…With Focus' help, many of our partners have grown substantially, through accretive acquisitions of wealth management practices and customer relationships.”
Focus did not answer a request for comment.