Focus Financial makes 'abrupt' CEO call, lets Rudy Adolf go into 'retirement,' with 'no solution in place;' the eighth RIA chief executive unseated since June as VCs move in -- where is the EBITDA?

It was quick, definitive and nobody really saw it coming.

Clayton, Dubilier & Rice (CD&R) closed on its $7-billion purchase (including debt) of Focus Financial Partners, Aug. 31, and today (Oct. 23) – seven weeks later -- closed out the career of CEO and founder, Rudy Adolf.

No explanation was forthcoming from either side.

The move has more than a whiff of unforeseen urgency, according to Mike Wunderli, managing director of ECHELON Partners, an RIA investment bank in Manhattan Beach, Calif.

“This doesn’t look like a planned resignation,” he writes in an email. “It’s too abrupt and without a solution in place. Whatever the reason, they decided to go this direction, and go quickly.”

It's part of a growing trend in the RIA business; Adolf is the eighth top CEO unseated since June. See: Seven 'RIA' chief executives are stepping aside for CEO 'operators' as PE backers get 'trigger' happy in adverse market; here are their stories

The departures boil down to CEOs not being able to answer one question, Cecile Munoz, president of US Executive Search,said in an earlier interview. 

“The question everyone is asking is, ‘Where is the EBITDA growth?’”

Anticlimatctic

For now, CD&R has – effective immediately – placed one of its own executives, Dan Glaser, in the executive suite, at least on an interim basis. A search for a new CEO has been “initiated,” the release states. 

Glaser was already chairman of Focus’s board of directors and operating partner at the New York City private equity firm, Focus’s majority investment partner. 

CD&R only hired Glaser in January. He most recently served for 10 years as president and CEO of Marsh McLennan, the giant insurance brokerage.

The press release was an anticlimactic end to one of the more lucrative, well-compensated – and heavily perked – runs by an individual in RIA business history. Adolf, 60, lived a life of rich salaries, company-provided executive jets and then, an eye-popping $167.5 million payout on options upon the Aug. 31 closing.

He was also among the more self-assured and charismatic leaders the RIA business has seen – and who RIAs almost universally found likable.

“I liked the guy when he visited many years ago,” says one RIA principal in New England who demurred on being acquired. “As I recall, I told him that I wanted to put money into his company, not get money from them.”

Hands off

Adolf is officially staying on until the end of 2023 but has been given no named position in the interim. Glaser promises that Adolf will be honored for his 20-year run since Focus's 2004 founding.

"We wish Rudy nothing but the best in his future endeavors, and plan to honor his tremendous contributions to the company over the next several months," he says in the release.

Glaser adds: “I would like to take this opportunity to thank Rudy Adolf for his vision in building Focus Financial into an impressive wealth management organization that always puts our clients' interests first.”

Adolf's vision for his roll-up was very laissez-faire relative to other such ventures. He would acquire the RIAs but then leave them as autonomous businesses that filed their own ADV with the Securities and Exchange Commission (SEC).

The idea was that the hands-off approach would allow the animal spirits of entrepreneurs to burn brightly – more than making up for any losses in efficiency from weaving them into a single RIA like a Mercer or United Capital.

Yet Adolf was often under fire for the fact the 90 RIAs in his partnership cumulatively recorded little if any organic growth – except until the “tuck-in” acquisitions of partner firms were factored in. 

Yet there were other RIAs that absolutely boomed under the Adolf-led Focus.

“I can’t speak to the timing, but man, a lot of folks have to give incredible amounts of credit to Rudy (and team) for what he pioneered and achieved,” says Alex Potts, president emeritus, Buckingham Strategic Partners, an early Focus Financial holding that boomed by email.

:There are a ton of firms and advisors who are simply better because they crossed paths with him. I can confidently say that Buckingham feels that way." Seer: Buckingham becomes KKR-fueled, check-listed M&A 'machine' that now feeds on BAM TAMP clients

White knight

Historically, inorganic growth and acquisition have been considered fairly synonymous. See: Focus Financial shares soar after Rudy Adolf pumps the pipeline and stiff-arms analyst who presses him on a Focus sore point--organic growth, or lack thereof

Focus Financial shares as a public company were constantly under selling pressure until CD&R stepped in as a white knight and took the company private at $53 per share, the highest price in nearly a year. See: Rudy Adolf dodges questions on Focus Financial earnings call, possibly because one inconvenient question overhangs a PE firm's $53 share price offer

Glaser acknowledged that entrepreneurial “flair” has its place in a roll-up, but that his firm will try to create a tighter “weave” under CD&R ownership in a statement he made for the Aug, 31 release.

"We have deep appreciation for the entrepreneurial flair that exists within Focus, and we look forward to weaving the partnership closer together with a common purpose, shared capabilities and greater collaboration."

CD&R Partner David Winokur also stated that his firm planned to take Focus Financial in that direction.

"Focus represents an outstanding collection of leading RIAs and business managers, and our investment is predicated on having greater financial and operating flexibility as a private company in order to support and drive collaboration amongst these entrepreneurial partners."

Adolf was not known to share Glaser's enthusiasm for all that common-ground kumbaya – a potential source of a philosophical fissure.

Adolf's retirement also part of a CEO retirement tsunami, according to a study just published that Bloomberg reported on Oct. 19.

“More than 1,400 chief executives have left their positions so far this year through September, according to a report by executive coaching firm Challenger, Gray & Christmas Inc. 

"That’s up almost 50% from the same period last year and the highest on record over that period since the firm began tracking in 2002.”