Clayton, Dubilier & Rice 'likely bumped up multiple by a few turns' on Focus Financial valuation with self-merging binge that's gathering steam with $6.6B AUM GYL deal

The great Focus Financial Partners experiment of re-rolling its roll-up is on a serious roll after adding GYL's $6.6 billion to The Colony Group.

The moves likely send its valuation up by multiples only about a year into the turnaround plan.

Clayton, Dubilier & Rice, and StonePoint, which bought Focus in a $7 billion deal, elevated RIA owners Adam Birenbaum and Michael Nathanson and let them work their magic as practitioners.  It's working – and will likely attract imitators, an M&A expert says.

“We hope to thread the proverbial needle between the positives and negatives of large and small firms, says Birenbaum.

He cited "extraordinary resources, capabilities, expertise, and solutions that advisors and clients need… that delivers all this in a profoundly personal and boutique way." See: Adam Birenbaum's calls 'Colony' deal -- to create $100-billion super-RIA -- a 'mandate,' but it's also likely a 'prelude' to larger strategic objective, M&A expert says

All upside

In a transaction completed on Nov. 1, Colony absorbed GYL Financial Synergies of West Hartford, Conn, which has big account holdings and the ability to serve institutional and private clients.

Colony now has 100 offices across the United States – and few drawbacks to big gains, says Mike Wunderli, managing partner at ECHELON Partners in Manhattan Beach, Calif.

“It’s almost all upside in terms of growth, scale, profitability, and enterprise value,” he says.

 “There might be some advisors that don’t care for it, or local position redundancies that get repurposed, but the upside is both massive and relatively low-hanging fruit for the picking, which far outweighs any potential risks.”

Evolutionary phase

It's all systems go on evolving the business model, says Colony CEO Birenbaum about the restructuring underway with Michael Nathanson as CEO of Focus.

"Michael and I and the rest of the leadership team at Focus are truly inspired and energized about the new direction here. 

"Focus has always been one of the most successful forces in the independent wealth management space. 

“However, now with this new vision and the amazing backing and support of our partners at CD&R and StonePoint, we are being given the opportunity to usher in a new, evolutionary phase here.

"I would argue [this] was wanted and needed, and the buy-in and momentum for that journey is clearly occurring.”

The proposition of meshing corporate power and entrepreneurial flair – after Focus for so long subscribed to the power of autonomy as its guiding principle – now looks inviting to other firms, Wunderli says.

Asked if imitators are gearing up to use the CD&R blueprint, he replies with a terse but clear: “Yes.” 

WYSIWYG

That buy-in to the blueprint is allowing Colony to tick off one big deal after another.

“This deal marks the eighth merger into Colony this year, a milestone that underscores the continued momentum of Focus Financial Partners’ forward-looking strategy,” said Nathanson in a release. See: Michael Nathanson's new post as Focus CEO could create an 'apparent conflict' with his duties at Colony Group, which is snapping up billions in Focus RIA assets -- but 'partners' now have one of theirs in the power seat

What you see with Colony is what you get with all this decisive M&A action, Wunderli says.

“All indications would suggest that it’s going very well so far,” he says. “Focus has likely already bumped up their multiple by a few turns, with many more turns to come if they keep executing.”

Expect the roll, with any luck, to keep rocking, Birenbaum says.

“The momentum absolutely continues. I believe the future is very bright. We try to be humble and try to be calm and collected, but the protective outreach and interest in being a part of what we are building has been very strong.”

Entrepreneurial flair

Former GYL CEO Gerry Goldberg says he is satisfied with taking a lower-rung title to be part of the larger Colony.

“I am excited to be part of the leadership team while remaining connected to our clients as a division president at the combined company.”

The quick roll-out of the secondary roll-up was exactly what CD&R and StonePoint promised as it closed its take-private deal of Focus in August last year. 

“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,” said Dan Glaser, Focus Chairman and an operating partner at CD&R in an Aug. 31, 2023 release.

Groundbreaking

One factor helping Birenbaum do deals is having people laser-focused – beyond deals, not least having Michael Kitces as a "draw" and “presence,” he says. 

As for Kitces, "I love that Michael, too!” he writes by email.

“While his role with us is not a day-to-day operating leader as we put this together, he remains a very significant draw for advisors and his industry presence remains critical. 

"Jeffrey Levine does play a very active operating leader role as our chief planning officer. What he, Rob Zilliak, and Aaron Grey are building out in terms of advisor solutions I believe to be groundbreaking. ”