Focus Financial Opens Door to Investment Banks

The serial acquirer of RIAs filed a document with the SEC when it didn’t need to. Or did it?

(Illustration by RIA Intel)

(Illustration by RIA Intel)

Minutes after Friday’s trading session ended, and the Labor Day weekend began, Focus Financial Partners filed documents with the Securities and Exchange Commission that help clear a regulatory path to raise money through a new security offering.

But the prolific acquirer of RIAs that went public last year also simultaneously published a press release stating it has no intentions of doing that in the near future.

The company said that filing the Form S-3 after the one-year anniversary of the initial public offering was simply a “standard market convention” and “good corporate practice.” Focus Financial (ticker: FOCS) went public on July 26th, 2018.

“It is certainly customary for public companies to seek to file and declare a shelf registration statement as soon as they become shelf-eligible, which is typically one year after an IPO,” said Brian Rosenzweig, a partner at Covington & Burling.

Companies routinely file so-called “universal shelf” registrations to begin the process of SEC approval for sales of shares, debt and other securities. It gives them the flexibility if they decide to raise money and the ability to react quickly to opportunities or the company’s performance, Rosenzweig said.

For that reason, the registration appears logical and consistent with what Focus has communicated. CEO Rudy Adolf told RIA Intel If you don’t grow, you die” and the company has shown a willingness to take on debt and heighten its leverage so it can pursue attractive deals at will.

But what is peculiar about the shelf registration is that Focus didn’t need to file it when it did, at least for the typical reasons. The company is considered a “well-known seasoned issuer,” or WKSI, meaning its securities offerings through shelf registration statements become effective automatically upon filing. It actually filed a S-3ASR on Friday showing this.

So why file the form?

The move enables Focus to do something it couldn’t before: solicit investment banks to go out and gauge Wall Street’s appetite for Focus shares or debt, said Rosenzweig, who is not familiar with Focus specifically and does not know if the company is engaging investment banks.

Without filing a S-3ASR, Focus would have been limited to soliciting investors directly, said Rosenzweig. Focus could not be reached to comment on the filing.

Still, Focus investors continue to suffer. The stock price, which fell to a new low this week, remains nearly 60% below its high reached last year.

Related Articles
The size, style, and profitability premiums could increase retirement assets by as much as 20 percent.
Changes to popular model portfolios can “make or break” the story of sustainable investing in the U.S.
And more portfolios are on the way, said Morningstar Wealth’s president Daniel Needham.