Focus Financial deal for white-shoe New York City RIA adds $7.7-billion of AUM, but Focus stock remains mired in the doldrums on Wall Street

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The New York roll-up makes partner of Williams, Jones & Associates, a firm of 38 employees including 14 advisors

Brooke’s Note: These are truly salad days for RIA roll-ups. Capital is everywhere to buy RIAs. It’s also everywhere to buy RIA roll-ups. That said, I found it a peculiar circumstance that Focus Financial did a $7-billion deal and kept it pretty much under the radar. A closer look reveals this is a different kind of RIA acquisition on some levels.

Focus Financial Partners’ deal to add $7.7 billion of assets under management (AUM) to its partnership portfolio, failed to move the needle on its stock price, which remains in the doldrums following a tumble toward the end of last year. 

David Selig
David Selig: ‘Didn’t hear a peep about this.’

Focus announced, May 21, the purchase of Williams, Jones & Associates, a white-shoe, Fifth Avenue wealth management firm in New York City and Palm Beach, with 38 staff, including 14 advisors.

Brought to the attention of M&A experts, who watch for these deals like hawks, the AUM involved was news to them.

“Didn’t hear a peep about this,” says David Selig CEO, Advice Dynamics Partners, LLC, an RIA M&A shop in Mill Valley, Calif.

“Focus needs larger and larger partnership deals to move the needle for its public investors and, presumably, a $7-billion deal fits the bill,” Selig said.

Ironically, Focus did not disclose the RIA’s assets under management in its news release. 

The $7.7 billion amount is based on a “welcome” letter written by its 67 year-old chairman, Bill Jones, and posted on the company Web site. The RIA’s ADV lists $6.8 billion as of Dec. 31.

Bonds for Biff, Muffy

Focus may have kept this big deal on the down low because of its business model, says one industry consultant who knows the firm and its owners.

“William Jones is an old-fashioned stocks and bonds firm,” the source says. “Believe it or not, some firms still manage individual equities and individual bonds for Biff and Muffy.  

“Curiously, New York is loaded with these firms–whose self-identity is as an investment manager, which serves older clients with an out-of-date model–that don’t trade at a fat multiple, but can drive Focus Financial’s aggregate AUM.”

Indeed, the deal failed to energize the stock. Shares were trading at about $31 on the day of the announcement. The stock finished today (June 3) at $27.59, down 46 cents, or 1.64%, from its open. The Nasdaq slid an equal amount.

Shares are still trading mid-range based on its 52-week swing from $22.61 to a high of $49.52 and have inched up from Q4 last year when the price slipped to around $25. 

An analyst suggested in December that Wall Street was losing interest the stock after souring on the Focus story. Focus went public at $33 and closed in first day trading at $37. See: Focus Financial IPO is on at $39 per share as KKR pushes giant share premium, with an eye on raking off an extra $532 million

“Having gone public at $33 per share on heavily adjusted earnings, Focus doesn’t have a history of profitability to form a reliable foundation for value. If Focus had IPO’d at $18 and drifted up over the first few months to the mid-20s, it would be viewed today as a success,” the analyst wrote. 

More of the same

In that sense, the William Jones acquisition was more of the same, which may explain why Focus soft-pedaled the deal.  If the standard formula applies, Focus paid about half of the RIA’s revenues to gain its AUM.

Rudy Adolf
Rudy Adolf: ‘I never want to build my own legacy systems and legacy problems.’

Bill Jones was a “motivated seller” for three reasons: his age, the need to accelerate the modernization of his firm and the sense that the “fat multiples” RIAs are commanding right now may not last forever, said the industry consultant. 

For Focus Financial shares to rise, investors need to be convinced that it can continue to do more and larger M&A deals, according to industry observers.

Those deals depend on RIAs believing Focus brings the right bundle of liquidity, capital and in-house expertise to allow for the firms to stay current on software and get the next generation into ownership without becoming a soulless holding of a larger institution.

Focus Financial declined to respond to an email sent to its head of media relations, Tina Madon. 

Focus consists of  70 employees who help RIAs with strategy, marketing and business development, operation and technology support, including cyber security, legal and regulatory support and HR advice.

That said, it has no shared “platform” like HighTower, United Capital and Dynasty Financial Partners.  It’s hands-off position with RIAs has been cited as an advantage by Focus founder, CEO and chairman Rudy Adolf. 

“I never want to build my own legacy systems and legacy problems,” he told Wall Street analysts on May 10. “I’d rather use whatever the best and brightest vendors with the best economics out there, to enable and empower our partners.”

High Praise

Adolf used a string of superlatives to describe his thoughts on the acquisition.

“We are thrilled to have a firm of Williams Jones’ caliber join our partnership,” he says in the release. “The partners of Williams Jones have built a preeminent wealth management firm committed to serving the comprehensive financial needs of their clients.” 

The firm will continue to be led by Jones, along with partners Gus Wilmerding, III, Barbara A. Tarmy, John J. Eager, Malcolm L. Macpherson, Jr., Thomas H. MacCowatt, Maureen C. Tompkins, John B. Cummings, David A. Rosenfeld, J. Douglas Kelly, Jr., Karen Y. Ma, Jeff Schweon and Hoa V. Le.

For custody services the RIA refers clients primarily to Charles Schwab, Fiduciary Trust, State Street, Morgan Stanley, or BNY Mellon Pershing, according to the ADV2. yet later in the ADV, it mentions that the firm accepts referrals from TD Ameritrade and Schwab.

The deal is expected to close between July 1 and Sept. 30.

 

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