Summit’s Wealth Mgmt Firm:
Right Place, Right Time

By Shasha Dai

5/10/2007 – NEW YORK – Focus Financial Partners had a specific set of goals it wanted to achieve within two years when Summit Partners helped to form it in January 2006. Less than a year and a half in, the financial advisory company has already achieved them.

Its growth is a testament to why buyout firms are descending on the financial services sector en masse, looking to find their way around government regulations in order to participate in a booming industry.

New York-based Focus Financial, to which Summit Partners has committed $35 million in debt and equity, aims to acquire advisory outfits that employ independent financial advisers, one of the largest and fastest-growing wealth management forces today. The advisers aren’t affiliated with investment banks or brokerage firms, and typically charge fees as opposed to commissions. They are quickly becoming popular with wealthy investors, thanks to the unbiased and individualized services they provide.

Since its January 2006 launch, Focus Financial has made 10 acquisitions, increasing assets under management to $17 billion from $3.5 billion. Its employees have quadrupled to 400, and its clients have increased to 8,000 from about 2,000, said founder and Chief Executive Ruediger Adolf. Growth has primarily come from acquisitions, which Focus Financial funded through cash flow, debt financing, and equity capital.

“We’ve come a long way, and exceeded virtually every expectation when we started the journey,” Adolf said, declining to discuss financial details.

Behind Focus Financial’s growth is the increasing number of baby boomers entering retirement age, and the proliferation of independent financial advisers, whose ranks are being filled by former securities brokers.

According to a 2006 Consumer Retirement Survey conducted by consultancy McKinsey & Co., more of these potential clients are putting their faith in independent financial advisers to meet their retirement needs: 69% compared with 65% in McKinsey’s previous survey in 2004. Correspondingly, far fewer respondents are putting their faith in investment firms and brokerages.

“The wind continues to be at our back,” Adolf said.

By pulling a number of firms together under one roof while maintaining their brand names and local presence, Focus Financial can plan marketing campaigns and offer support functions across the platform, without hurting the benefits these firms derive from being independent.

Putting together a national platform will also help the parent company to eventually achieve an exit. Focus Financial could go public, given the record of other asset managers that have gone that route. While Fortress Investment Group springs to mind as one comparable IPO, Summit Partners may be looking more at the example of National Financial Partners Corp., a wealth management firm formed by Apollo Management in 1999 with $125 million of equity. Apollo took National Financial public in 2003, and has received at least 3.5 times its money to date by selling down shares and taking out dividends.

Being a public company would also enable Focus Financial to further its acquisition strategy, as it could use its stock as currency to do more deals.

But Summit Partners isn’t in a hurry to exit the investment. Focus Financial plans to make up to 50 acquisitions in the next few years, and its equity sponsor stands at the ready to invest additional capital if the company goes after larger deals.

There are plenty of opportunities. And with Focus Financial so far ahead of the game, it’s in solid position to capitalize.

“Most people are in the second inning of a nine-inning game,” said Kevin Mohan, a Summit Partners general partner. He added that Focus Financial itself is near the ninth inning.

“We are fortunate to be in the right place at the right time,” Mohan said.

Reach Summit Partners at 617-824-1000 and Focus Financial at 646-519-2456.

http://www.focusfinancialpartners.com
http://www.summitpartners.com