December 11, 2023

and Focus Financial Partners prepares to go private and its rivals dissecting the aftermath of the deal worth more than $7 billion, with one of its companies speaking out.

A civil suit was filed late last month by accountants and celebrity business managers Mickey Segal of NKSFB in Los Angeles Charges against Registered Investment Adviser Consolidator Focus and Firms That Helped Negotiate Upcoming sale to private equity firm, Goldman Sachs, breach of contract, fraudulent concealment, and other violations. Siegel claimed the firms undercut a potential sale of his own company and ignored their obligation to disclose separate negotiations with bidder and buyer Clayton, Dubilier & Rice.

The situation was “the perfect storm for a David and Goliath story,” Siegel said in an interview. “Their attitude was, ‘We don’t have to tell you or do anything. It’s none of your business.’ Well, that’s not what the document says, that’s how we got here.”

The lawsuit was first reported Depend on Financial Timesciting sources telling the publication that NKSFB’s business management clients include Madonna, Drake and 13 of the past 15 Super Bowl halftime performers.

Representatives of Focus address Second-rate It said the lawsuit was without merit and that Siegel was “attempting to take advantage of Focus’s impending take-private acquisition to increase his economics from the Focus partnership.”

“These claims are baseless,” Goldman spokeswoman Sophia Anthony said in a statement. “From the very beginning of our involvement, Goldman Sachs has acted in a fair and honest manner to run an efficient and competitive process. Goldman Sachs is well-motivated to achieve the best possible outcome for our clients, otherwise it would be absurd to suggest otherwise .”

Siegel’s lawsuit follows the usual series of “investigative” announcements Survey from Law Firms Regardless of the purchase price of Clayton and Dubilier $53 per share Best bid on behalf of Focus shareholders in the February agreement.40-day “buying” period to give company boards time to solicit additional quotes Expires April 8 According to the company, there are no alternative proposals.

The deal also prompted some reflection from industry experts and rival RIA aggregators on the lessons learned from it Five-year tenure of Focus as a listed company.exist Last week’s webinar Led by John Furey, managing partner of RIA advisory firm Advisor Growth Strategies, some of the industry’s leading dealmakers explain why going public in the age of private investors is no longer attractive Bidding 12 or even 20 times the company’s earnings.

“The thinking used to be, ‘Hey, you get your funding stage, and you end up going to the public markets to get the most liquidity, the highest valuation,'” Furey said of the “very interesting” Focus deal. “But does this prove that, in our space, this is not the case?”

Sailor Wealth Advisors CEO Marty Bicknell answered “yes” to Furey’s question.

“To me, it shows that the public market doesn’t understand the wealth management business,” Bicknell said. “As you mentioned, Focus was taken private at a significant discount to the last dozen or so deals of similar companies. So, to me, that just means the market isn’t valuing the business. “

NKSFB Joined Focus in the same year Early private equity investors KKR and Stone Point Capital took the company public. After starting in 1981 as an accounting firm with just three clients, the firm has grown to become the largest practice manager in the country, according to Segal. It “provides a complex array of concierge-style business management services to some of the world’s top artists, performers, athletes and entrepreneurs,” the lawsuit says.

When Focus bought the company, it and the former owner created a separate management company that charged fees based on the profits Focus made from NKSFB. In the middle of last year, Segal and Focus began exploring the sale of NKSFB and a management company that would collect Focus’s profits for NKSFB’s former owners. At Focus’ urging, Segal’s team hired Goldman Sachs as its investment banker. They agreed to hire Goldman last September, and the following month, the three parties signed a non-disclosure agreement requiring “each mutual client to know what the other was doing in relation to the proposed transaction,” the suit says.

“This is important because bidders interested in buying the NKSFB business are certainly interested in buying the entire public entity Focus,” it said. “The last thing (the management company) wants to do is share information with Goldman Sachs and Focus, which they can use to sell NKSFB as part of a separate deal for Focus, as such a sale would negatively affect the attractiveness of (the management company) As an acquisition target. Unfortunately, that’s exactly what happened.”

Over the next few months, Siegel said, the parties spoke with 15 potential suitors and heard expressions of interest from eight to 10 others. Unbeknownst to him and his partners, Focus was advancing its own negotiations for a potential sale.

NKSFB ultimately received five bids, amounting to about 20 percent of the Focus purchase price, Segal said.In his view, other negotiations and Exclusive talks finally announced on February 2 Between Focus and Clayton, though, Dubilier scared away as many as 15 other would-be buyers.

“Focus secretly hired Goldman Sachs as its investment banker for the sole purpose of selling the entire Focus Company, including the NKSFB business, a fact that both Focus and Goldman concealed from (the management company),” the lawsuit says.

“On February 2, 2023, (the management company) was shocked to learn that Focus and Goldman Sachs had been cheating from the start,” it continued. “(The management company) was informed by a press release that Focus has entered into an exclusive agreement with CD&R to negotiate the terms of the agreement for CD&R to acquire Focus. Such a deal would necessarily involve the acquisition of NKSFB – which is precisely the case in which Goldman Sachs and Focus said they would not Happened, didn’t happen, and that became the driving force behind the carefully negotiated safeguards in (the non-disclosure agreement).”

The lawsuit, filed in Los Angeles County court, includes a series of email exchanges and letters between Segal and Focus officials, including general counsel Russell McGranahan and co-founder Lenny Chang. An email last month from Pat Fels, head of Goldman Sachs’ financial institutions group, notified Siegel and Focus officials that NKSFB bidders who had spoken to investment bankers “indicated that they were ready to enter the next round of the process and were on standby.” Still , Siegel wrote two days ago that a “friendly meeting” between the NKSFB and Focus was no longer possible.

“Of course you support the current process, and if there is no agreement, nuclear war will happen,” Siegel said in an email. “Of course, Goldman Sachs wants that to happen because their violations and conflict will cost hundreds of millions of dollars.” Loss in dollars, due to lack of process, both because of your conflicting behavior since Nov 1st, and because you’ve been soliciting buyers through December to try to overbid CD&R.”

In the interview, Siegel said the term “nuclear war” alludes to earlier comments by a Goldman Sachs executive urging him not to “start a nuclear war on us” by suing the firm.

“I hope there’s a way to fix this and find some friendly way to do it,” Siegel said. “The whole world should know this story.”