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Big-Time Rollups Continue

Big-Time Rollups Continue

Focus Financial plans to acquire Colony Group.

Focus Financial Partners in New York is one of the largest registered investment advisor aggregators in the country, but Chief Executive and founder Rudy Adolf likes to say that the company is not interested in turning entrepreneurs into employees. This philosophy resonated with the partners at The Colony Group in Boston, one of the oldest RIAs in the country (founded in 1986). Focus announced that it would acquire Colony effective Oct. 1, making it Focus' fourth deal so far this year. Colony, which has $1.3 billion in assets under management, will make Focus a $45 billion player; not bad for a company that started just five years ago with $3 billion in assets. Adolf hints that more deals are in the works: “We actually believe this is going to be a very good year for us.”

RIAs with national ambitions have been busy this year, with major deals announced by such firms as United Capital Financial Partners and HighTower Advisors. Colony Chief Executive and President Michael Nathanson said two things helped drive the noted RIA into Focus' camp. The first was its deep pockets; Focus is backed by two venture capital groups, Summit Partners and Polaris Venture Partners, and it also enjoys access to financing through Bank of America, he said. Colony has done small acquisitions in the past, deals for firms with AUM of less than $100 million, Nathanson said, but now it wants to step up its growth. “We are thinking big,” Nathanson said, “and we now have the capital and the experience to make something happen.”

The other attraction of Focus was the deal's ability to help some Colony partners cash out, including founder Kirby Hamilton. (He's stepping down as chairman at Colony, but Nathanson said he will own Focus stock and participate in earnouts with the company.) Colony's new management team will include Nathanson as chairman, Stephen Sadler as president of Colony Wealth Management, and Elisabeth Talbot as executive director and chief market strategist. The Colony deal (terms were not disclosed; Focus usually acquires 40-70 percent of a firm's EBITDA in return for cash and Focus equity) is the second this year in which Focus helped a founder transition ownership. In July Focus partner Sentinel Benefits & Financial Group in Reading, Mass. acquired retirement planning solutions provider Schloss & Company in Westbury, N.Y., allowing founder Eugene Schloss to retire.

Nathanson, 44, said that while Focus would own Colony assets, the deal allows the Colony management to continue to operate the firm as they see fit. The arrangement was different from those of other suitors, he added. “Focus is not permitted to run the company on a day-to-day basis. They're looking to us to do that,” Nathanson said. “That's what we like about this deal, because we still run the company.” Twenty partners will remain at Colony, along with more than two dozen staff. The firm has more than 800 clients; Nathanson said all the clients who have responded so far to the announcement of the acquisition have agreed to stay with Colony, and he expects the rest will have followed suit by the Oct. 1 closing date.

Colony isn't the largest RIA that Focus has bought (that distinction belongs to Buckingham Family of Financial Services, which had $7.8 billion in AUM when it was acquired four years ago, Adolf said), but it's the largest deal closed so far this year. In addition to the Sentinel/Schloss deal, in July Focus partner Founders Financial Network in Cupertino, Calif. signed up Jovita Honor, a founding principal of Prialta Advisors. In January, Buckingham announced it acquired Advisors Access, a turnkey 401(k) program.

Adolf said Focus likes to target firms that are leaders in their field. (Putting in regular appearances on top-advisor lists across the nation, Colony also received the Best-in-Business IMPACT Award last year at Charles Schwab's annual conference.) In addition to independence, Focus also likes to see AUM of at least $300 million to $400 million and an interest in growth, he added.

Alois Pirker, an analyst with Aite Group, said Focus' deal for Colony suggests that aggregators may be raising the bar by going after $1 billion-plus players. “That's the interesting news here,” he said. “Those large shops are in the target zone for rollup firms.”

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