Focused on a Successful IPO: How V&E Helped Focus Financial Partners Execute on a Complex Initial Public Offering

How do you get 300 investors to agree on the parameters of a complex IPO?

Look no further than V&E, which advised New York-based Focus Financial Partners on its approximately $615 million IPO – one of the largest IPOs ever in the wealth management industry.

“It was an incredibly complicated deal,” said Focus Financial General Counsel Russell McGranahan. V&E “was involved in every step of the transaction.”

The IPO is the culmination of a longtime relationship between V&E and Focus Financial, a valued-added investor in independent Registered Investment Advisor (RIA) firms that act as fiduciaries on behalf of their clients. V&E has been advising Focus Financial since Focus Financial’s inception in 2004.

The firm was instrumental in crafting a unique arrangement that aligns the interests of the advisory firms under the Focus umbrella with their parent company. Under this arrangement, Focus acquires 100% of advisory firms, but only a portion of the firms’ profits, which continue to be shared with the advisory firms’ principals. In this way, the advisors who sell are incentivized to continue to run their firms profitably and to maintain their entrepreneurial spirit.

“The business model of Focus has been very successful, and one reason it has worked so well is because of the legal structure we put in place,” V&E partner Robert Seber said.

McGranahan, as well as V&E partners Seber and Brenda Lenahan, and associate Stancell Haigwood recently sat down to discuss Focus Financial’s IPO. Here’s what they had to say:

What challenges did Focus Financial face in going public?

Focus Financial’s large number of owners coupled with its complex structure presented significant hurdles. Originally organized as an LLC, Focus had approximately 300 owners, including private equity firms Stone Point Capital, Centerbridge Partners, and KKR, and multiple wealth advisors who had sold their firms to Focus.

Focus Financial chose to undertake its IPO in the form of an Up-C, or Umbrella partnership-C corporation. With an Up-C, a public offering is made through a newly created holding company, which then owns an interest in the existing entity, typically an LLC. This arrangement allows the original partners in an LLC to maintain the entity’s “pass-through” tax status.

Once Focus decided it would take this route, the road to the final destination was not a straight line. In late 2016, Focus went “dual track,” pursuing both an IPO and a significant new private equity investment. The process resulted in Stone Point Capital and KKR investing approximately $800 million in Focus in 2017.

With the IPO only temporarily on hold, the Stone Point /KKR transaction was made even more complex by the need to establish terms for the multiple owner groups in an IPO. At one point, V&E found itself interacting with over 15 law firms, including many of New York’s top corporate firms.

The IPO preparation continued in 2018. “We had to negotiate the terms of a massive reorganization and get this all approved through a consent process,” McGranahan said. “Robert Seber led the way, particularly in negotiations with our private equity holders. He crafted a consent solicitation document which was really a work of art in turning a highly complex transaction into words that could be easily understood by a wide pool of unitholders.”

In what other ways did V&E help bring about a successful IPO for Focus Financial?

Focus benefitted from V&E’s deep understanding of the company and from the firm’s extensive capital markets experience.

“On the corporate finance side, Brenda and Stancell were invaluable in guiding the process,” McGranahan said.

V&E’s skills were on display in the firm’s smooth handling of the SEC registration process. In spite of the complexity of the offering, the SEC had only two comments in response to the company’s second confidential registration statement submission.

“Robert’s historical knowledge of the business was very helpful,” Haigwood said. “He really knows the way Focus Financial operates its business.”

Focus is in the business of acquiring wealth management firms. How was the company able to continue to do business during the SEC registration process?

Focus Financial had to be careful and thoughtful in its marketing efforts during the SEC registration process to steer clear of any potential “gun-jumping” issues. But with V&E’s help, the company was able to continue achieving its business goals while at the same time satisfying SEC rules.

Focus is “in the business of investing in private wealth management companies and then, of course, their private wealth management firms are marketing themselves to potential clients,” Lenahan said. “In order to comfortably and best advise them, you really had to understand how they operate and what they’re trying to achieve.”

The Focus IPO required legal knowledge across multiple disciplines. How did V&E bring a team together to meet the challenges?

Ultimately, the IPO benefitted from the team V&E put in place that worked across practice areas to get the deal done.

In addition to Seber, Lenahan and Haigwood, V&E tax partners David Peck and Lina Dimachkieh handled extensive tax work. The V&E team, in turn, “worked with the other constituents involved in this,”Lenahan added. “I think that also helped the company in the long run. We did our best to view all of the other parties as a team because at the end of the day, we’re all looking to achieve the same goal here. We were all looking for a successful IPO.”

Now that Focus Financial has successfully completed its IPO, what’s next for the company? 

Focus Financial will continue on its acquisition path. The IPO both raises the company’s profile and provides the company with additional currency to do transactions.

V&E has been advising Focus Financial from its inception. How did it feel to know that V&E has helped usher the company to its next chapter? 

“It feels great,” Seber said.  “Focus has been very loyal and very appreciative of the work we have done for them. It is very rewarding on a personal level to have accompanied them throughout this journey.”