Goldman Sachs [Project Ferdinand]

Transaction Overview

Background

The target transaction involves the acquisition of Focus Financial Partners (“Focus” or “the Company”), a leading partnership of independent fiduciary wealth management firms, by Clayton, Dubilier & Rice (“CD&R”), a global private equity firm.  

Founded in 2006, Focus had a clear objective: to unite the best wealth management firms while empowering them with centralized support and operational autonomy. Over the years, this vision fueled its growth into a leader in the wealth management sector, offering comprehensive financial planning and advisory services.  

In July 2017, Focus attracted a majority investment from a group led by Stone Point Capital and KKR, valuing the company at $2 billion. A year later, in July 2018, Focus went public during a time of significant optimism around its business model, which is mostly driven by recurring revenues from fee-based advisory services and relatively low operational intensity. 

Following the IPO in 2018, Focus' share price stumbled, reaching around $20 in August 2019, with further underperformance at the start of the COVID-19 pandemic. However, the stock eventually rebounded, surpassing $60 in November 2021. Around this time, the company’s management may have begun considering a return to private ownership to focus on long-term strategy without the pressures of short-term market performance.

Will the Deal Take Place?

In July 2022, the wheels were set in motion. With Goldman Sachs leading the advisory efforts, Focus’ board weighed the pros and cons of a deal. On one hand, the appeal was strong: 

• A potential cash premium in a market weighed down by macroeconomic and geopolitical risks. 

• Reduced downside risk while offering Focus a chance to execute its strategy more freely. 

• CD&R’s solid reputation as a credible buyer enhanced the likelihood of closing. 

But as with any major transaction, there were challenges too, particularly the question of whether CD&R was ready to submit an offer that truly captured the Company’s value. Would waiting for better market conditions yield more? Some stakeholders wondered if waiting for a stronger momentum could lead to higher offers, while others saw the possibility of an immediate cash premium and the opportunity for transformative growth as compelling reasons to move forward. 

The Deal Takes Shape

By September 2022, CD&R's interest in the Company became more concrete. As Goldman Sachs and the Company’s legal team explored potential structures for the transaction, the market began to sense that a significant deal could be on the horizon. With Focus’ competitive positioning under the microscope, the board held a series of strategic discussions, assessing various valuation models and potential offers. 

In November 2022, CD&R submitted an initial offer valuing Focus at $45 per share, a premium compared to recent trading levels. Due diligence commenced with a deep dive into Focus’ financials, from historical and FY22-23 performance outlook to long-term management plans.  

CD&R’s team also scrutinized the Company’s acquisition strategy, including its reliance on debt, and examined how its organic growth could be impacted by market conditions. They also analyzed how Focus’ earnings and valuation would hold up across different market cycles, considering the volatility of the broader financial landscape.

At this point, Goldman is running around the clock with last-minute valuation updates, board meetings and financial projects. No time for the Christmas dinner, the latest offer was $45 but the client wants more. 

It's December 2022, and there’s good news! CD&R improved the offer to $47.5 and then to $50 per share. On the one hand, Goldman outlines the pros of the transaction, noting that closing the deal would protect Focus from potential downside risks, the ability to close a deal at a premium during uncertain times, and the fact that CD&R is a respected buyer. On the other hand, some of the negatives seemed to be the fact that $50 was low compared to the standalone valuation and also the market momentum being poor for a deal (more detailed in GS’s Special Committee deck). 

By February 2023, after rigorous negotiations and Fairness of Opinions from Jefferies, CD&R increased its offer to $53 per share, boosting the enterprise value to approximately $7 billion. This revised offer quelled some earlier doubts and demonstrated CD&R’s belief in Focus’ long-term growth potential. Both parties were now confident that this transaction would be a powerful growth engine under CD&R's ownership.  

Closing the Deal

With the final terms agreed upon, the deal was announced on the 27^th of February 2023, marking a new chapter for Focus. By the end of August 2023, the Company had transitioned into a private entity under CD&R’s ownership. With leadership intact and CD&R’s network and resources behind them, Focus Financial Partners is now poised for its next phase of growth, free from the scrutiny of public markets. 

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Until next time,
PE Bro

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