Focus Financial Partners Inc.

The stable outlook indicates S&P Global Ratings' expectation that Focus will operate with weighted average S&P Global Ratings-adjusted debt to EBITDA of 5x-7x during the next 12 months while continuing to acquire wealth managers and generate strong organic growth. We could lower the ratings if Focus operates with debt to adjusted EBITDA above 7x or EBITDA interest coverage below 2x on a sustained basis, per our calculations. We could also lower the ratings if its business deteriorates significantly, which could be demonstrated by weakening organic growth. We could raise the ratings if the company operates with S&P Global Ratings-adjusted debt to EBITDA comfortably below 5x on a sustained basis and the business continues to grow while retaining the downside protection

...Focus Financial Partners Inc.'s operating efficiency may improve as the company buys out management agreements in place with existing partner firms and merges them into "hub" firms. The shift in business model will allow Focus to centralize more shared services and backend functions, and retain all earnings of its partner firms. Focus will retain all upside to earnings growth but no longer have a preferred position in the earnings of bought out partner firms and newly acquired firms--a feature that had provided downside protection to a portion of Focus's earnings in the past. We expect the company to operate with leverage at 5x-7x over the next 12 months, per our calculations. We expect Focus to continue to make debt-funded acquisitions, and for leverage to remain elevated given the wealth management industry's high fragmentation and trend of financial sponsor-backed consolidation, and high all-in multiples. However, we expect equity in Focus to be offered as a significant portion of acquisition...

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