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Private equity firms take controlling interest in Focus Financial

Focus Financial Partners is extending its 11-year relationship with private equity investors, raising new questions about the likelihood of the RIA-rollup going public anytime soon.

An announced 70% ownership stake by private equity firms Stone Point Capital and KKR & Co. values Focus Financial at approximately $2 billion, which founder Rudy Adolph described as "fair market value."

But rolling Focus' majority ownership to the third round of private equity firms since the firm's 2006 launch has some industry watchers wondering if Focus is getting closer to or further from a long-anticipated public stock offering.

"Whether they're getting closer to an IPO is something we could debate for a while, but they have had trouble soliciting interest in the public markets," said Brian Hamburger, president of MarketCounsel, a compliance consulting firm.

The new investor group provides liquidity to private equity firms Summit Partners, Centerbridge Partners and Polaris Partners, as well as employees and some RIAs that use Focus Financial's platform.

"It's a strong theory that this transaction is in lieu of a public offering," Mr. Hamburger said. "They have attracted some next-generation private equity investors, and this may be something they settle into."

David DeVoe, managing partner at consulting firm DeVoe & Co., agreed that as long as private equity firms are stepping up to take ownership, Focus Financial might not need the public markets to finance future growth.

Mr. Adolph acknowledged that a fresh private equity relationship takes a public offering off the table in the near term, but said, "We'd like to think that medium- and long-term the public market will be the right owner for Focus."

Focus has 45 partner firms and affiliates across the U.S. Australia, Canada and the U.K, with a joint venture in China.

Mr. Adolph said about 25% of the partner firms are breakaway reps from the brokerage industry, an area where he plans to maintain a deliberate focus.

From a private equity firm's perspective, the growth mode, along with the strong income yields of the underlying RIAs, are a golden goose, according to Elizabeth Nesvold, managing partner at the investment bank Silver Lane Advisors.

"For a private equity owner, the cash-flow play is amazing; it's a high-yielding private security that will likely appreciate," she said. "They essentially have a share of the revenues, and they have limited costs at the holding company level."

"Private equity firms take controlling interest in Focus Financial" originally appeared on InvestmentNews, a sister publication of Pensions & Investments.