Focus Financial Partners, a publicly traded partnership of registered investment advisors, announced Thursday it has entered into a limited exclusivity agreement with private equity firm Clayton, Dubilier & Rice to engage in negotiations regarding the terms under which CD&R may acquire Focus for $53 per share, or $4.1 billion in cash.
If the transaction is completed, Focus will no longer be a publicly traded company. The company's stock opened 12% higher Thursday on the news.
In November, Focus’ board of directors formed a committee to evaluate an offer from CD&R and explore other opportunities. Following “a series of negotiation and meetings with other potential bidders,” CD&R agreed to the price of $53 a share and the board approved the exclusivity agreement, according to the announcement.
CD&R has indicated that $53 is its “best and final” offer and expects no further price negotiations. The transaction would be subject to approval by a majority of disinterested shareholders. The price represents a 36% premium to Focus' 60-day average price as of close on Wednesday.
Private equity firm Stone Point Capital, which took a majority stake in Focus in 2017 before taking it public along with PE firm KKR in the summer of 2018, is considering retaining a portion of its ownership of the firm and providing new equity financing as part of the proposed transaction, subject to negotiation with CD&R. KKR has exited its position in Focus.
The investment would represent CD&R’s first play in the wealth management space, according to Brian Lauzon, managing director at InCap Group, an investment bank focused on the financial services industry. But he’s not surprised the firm would tap Focus.
“I know most private equity firms that are not in wealth management would like to be," he said. "And Clayton is a big firm, so there's probably only a handful of deals that would be big enough for them to bother and Focus is one of them.”
“Focus has a strong position in the market and creates a compelling case for PE firms with deep pockets,” agreed David DeVoe, CEO of M&A advisory firm DeVoe & Co. “Private equity firms see the value [in the independent wealth management space] and continue to invest in growth-oriented firms.”
Lauzon said the deal is likely also attractive to Focus shareholders, who would see the value of their stock increase upon the sale. The question, he added, is what CD&R plans to do with its investment.
“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? Part of that could be national brand-building, which should be interesting to see.”
Negotiations are ongoing and any transaction would be subject to due diligence, board and stockholder approval, regulatory approvals and other considerations. Focus and the board’s committee have declined comment, “unless and until a specific transaction is recommended by the Special Committee to, and approved by, the Board.”
"Rest assured, that if and when definitive terms are reached and a definitive agreement is signed, I will schedule a town hall and eagerly answer all of the questions that I can," CEO Rudy Adolf said in a note to Focus partners and colleagues that was filed with the SEC.
Jeffries LLC and Goldman Sachs are advising Focus on the potential deal.