Item 1.01 Entry into a Material Definitive Agreement
Merger Agreement
On February 27, 2023 (the "Execution Date"), Focus Financial Partners Inc., a
Delaware corporation (the "Company"), entered into an Agreement and Plan of
Merger (the "Merger Agreement") by and among the Company, Ferdinand FFP
Acquisition, LLC, a Delaware limited liability company ("Parent") that is
affiliated with Clayton, Dubilier & Rice, LLC ("CD&R") and Stone Point Capital
LLC ("Stone Point"), Ferdinand FFP Merger Sub 1, Inc., a Delaware corporation
and a wholly-owned subsidiary of Parent ("Company Merger Sub"), Ferdinand FFP
Merger Sub 2, LLC, a Delaware limited liability company and a wholly-owned
subsidiary of Parent ("LLC Merger Sub", and collectively with Company Merger
Sub, "Merger Subs"), and Focus Financial Partners, LLC, a Delaware limited
liability company and a subsidiary of the Company ("Focus LLC"). Capitalized
terms used and not otherwise defined herein have the meaning set forth in the
Merger Agreement, which is attached hereto as Exhibit 2.1.
Upon the terms and subject to the conditions set forth in the Merger Agreement,
(a) LLC Merger Sub will merge with and into Focus LLC (the "LLC Merger"), with
Focus LLC surviving the LLC Merger and (b) Company Merger Sub will merge with
and into the Company (the "Company Merger" and, collectively with the LLC
Merger, the "Mergers"), with the Company surviving the Company Merger.
At the effective time of the Company Merger (the "Company Merger Effective
Time"), (a) each share of Class A common stock, par value $0.01 per share, of
the Company ("Class A Common Stock") issued and outstanding immediately prior to
the Company Merger Effective Time, other than Excluded Shares, will be converted
into the right to receive $53 per share of Class A Common Stock in cash, without
interest (the "Merger Consideration"), and (b) each share of Class B common
stock, par value $0.01 per share of the Company ("Class B Common Stock" and
together with the Class A Common Stock, the "Company Stock") issued and
outstanding immediately prior to the Company Merger Effective Time will
automatically be cancelled and cease to exist. At the effective time of the LLC
Merger (the "LLC Merger Effective Time"), each of the Common Units and Incentive
Units of Focus LLC (each, a "Focus LLC Unit") issued and outstanding immediately
prior to the LLC Merger Effective Time and after the Vested Units Exchanges,
other than (i) the Rollover Units and any other Focus LLC Units owned by Parent
and (ii) the Focus LLC Units owned by the Company or any of its wholly owned
subsidiaries, will be cancelled and forfeited for no consideration.
At the Company Merger Effective Time, (a) each then outstanding option to
purchase shares of Company Stock (a "Company Option") that is vested and has a
per share exercise price that is less than the Merger Consideration immediately
prior to the Company Merger Effective Time, will be cancelled and converted into
the right to receive an amount in cash equal to the product of (i) the number of
shares of Company Stock subject to the Company Option immediately prior to the
Company Merger Effective Time multiplied by (ii) the excess, if any, of (A) the
Merger Consideration over (B) the exercise price per share of Company Stock of
such Company Option (the "Option Consideration"), (b) each then outstanding
Company Option that is unvested and has a per share exercise price that is less
than the Merger Consideration immediately prior to the Company Merger Effective
Time will be cancelled and converted into a Contingent Cash Award equal to the
Option Consideration with respect to such Company Option, (c) each Company
Option (whether vested or unvested) that has a per share exercise price equal to
or greater than the Merger Consideration will be cancelled for no consideration,
and (d) each then outstanding restricted stock unit award corresponding to
shares of Company Stock (a "Company RSU") that is unvested immediately prior to
the Company Merger Effective Time will be cancelled and converted into a
Contingent Cash Award in an amount equal to the product of (i) the number of
shares of Company Stock corresponding to such Company RSU immediately prior to
the Company Merger Effective Time, and by (ii) the Merger Consideration.
Immediately prior to and conditioned upon the LLC Merger Effective Time, the
Company will require each member of Focus LLC (other than the Company and its
wholly-owned subsidiaries and Parent) to effect an Exchange (as defined in the
Fourth Amended and Restated Operating Agreement of Focus LLC, dated as of
July 30, 2018, as amended (the "Focus LLC Agreement")) of all outstanding Vested
Common Units held by such member (including, with respect to each such member
who holds Vested Incentive Units, the applicable number of Vested Common Units
received as a result of the conversion (based on the IU Conversion Ratio) of
Vested Incentive Units held by such member that have a Hurdle Amount that is
less than the Merger Consideration), other than the Rollover Units, together
with, as applicable, the surrender for cancellation of the corresponding number
of shares of Class B Common Stock, in accordance with the Focus LLC Agreement
(the "Vested Units Exchanges"). Also on the date of the Closing and prior to the
LLC Merger Effective Time, each Incentive Unit, whether a Vested Incentive Unit
or unvested Incentive Unit, that has a Hurdle Amount that is equal to or greater
than the Merger Consideration shall, automatically and without any action on the
part of Focus LLC, Parent, the Company, or the holder thereof, be cancelled for
no consideration.
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At the Company Merger Effective Time, each outstanding unvested Common Unit held
by a member of Focus LLC (other than the Company and its wholly owned
Subsidiaries or Parent) (including, with respect to each such member who holds
unvested Incentive Units, each unvested Common Unit received as a result of the
conversion (based on the IU Conversion Ratio) of unvested Incentive Units held
by such member that have a Hurdle Amount that is less than the Merger
Consideration) shall automatically be cancelled and converted into a Contingent
Cash Award equal to the Merger Consideration, which Contingent Cash Award will
vest and become payable pursuant to the same vesting schedule applicable to the
corresponding unvested Common Unit or Incentive Unit, as applicable.
A special committee (the "Special Committee") of the board of directors of the
Company (the "Company Board"), comprised solely of disinterested and independent
members of the Company Board, unanimously recommended that the Company Board
approve and declare advisable the Merger Agreement and the transactions
contemplated thereby, including the Mergers, and that, subject to Company Board
approval, the Company Board recommend that the stockholders of the Company vote
in favor of adoption of the Merger Agreement. The Company Board, acting on the
recommendation of the Special Committee, unanimously recommended that the
stockholders of the Company vote in favor of adoption of the Merger Agreement.
Both the Special Committee and the Company Board determined that the Merger
Agreement and the transactions contemplated thereby, including the Mergers, are
fair to, and in the best interests of, the Company and its stockholders other
than CD&R, Stone Point and certain of their affiliates and portfolio companies
and persons who are "officers" of the Company within the meaning of Rule
16a-1(f) of the Exchange Act.
Consummation of the Mergers is subject to the satisfaction or, if permitted by
law, waiver by Parent, the Company or both of a number of conditions, including
among other customary closing conditions that (a) the adoption of the Merger
Agreement by the affirmative vote of (i) the holders of a majority in voting
power of the outstanding shares of Company Stock, voting together as a single
class, and entitled to vote thereon and (ii) the holders of a majority in voting
power of the outstanding shares of Company Stock, voting together as a single
class, held by the stockholders other than CD&R, Stone Point and certain of
their affiliates and portfolio companies and persons who are "officers" of the
Company within the meaning of Rule 16a-1(f) of the Exchange Act (clauses (i) and
(ii), collectively, the "Requisite Company Stockholder Approvals"), (b) the
waiting period applicable to the consummation of the Mergers under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 has expired or been
terminated and the necessary approvals, clearances or expirations of waiting
periods under certain other antitrust, foreign direct investment and other laws
have been obtained or deemed obtained as a result of the expiry of applicable
waiting periods, (c) no court or other governmental authority has enacted,
announced, issued, promulgated, enforced or entered into any law that restrains,
enjoins, renders illegal or otherwise prohibits consummation of the Mergers and
(d) the absence of a material adverse effect since the date of the Merger
Agreement. Moreover, each party's obligation to consummate the Mergers is
subject to certain other conditions, including the accuracy of the other party's
representations and warranties (subject to certain materiality qualifiers) and
the other party's compliance with its covenants and agreements contained in the
Merger Agreement (subject to certain materiality qualifiers).
The Company has made various representations and warranties and agreed to
certain covenants in the Merger Agreement, including covenants relating to the
Company's conduct of its business between the date of the Merger Agreement and
the earlier of the date on which the closing of the Mergers ("Closing") occurs
and the termination of the Merger Agreement and other matters.
The Merger Agreement contains a "go-shop" covenant permitting the Company to
solicit Acquisition Proposals from Third Persons during the period beginning on
the Execution Date and continuing until (a) 11:59 p.m. Eastern Time on April 8,
2023 (the "No-Shop Period Start Date") for any Person or "group" who is not an
Excluded Party, or (b) in respect of any Excluded Party, the earlier of (i)
11:59 p.m. Eastern Time on April 18, 2023 (the "Cut-Off Time") and (ii) the time
that such Excluded Party otherwise ceases to be an Excluded Party in accordance
with the definition of "Excluded Party" in the Merger Agreement. From the
No-Shop Period Start Date (or, with respect to an Excluded Party, the Cut-Off
Time) until the earlier of the termination of the Merger Agreement and the
Company Merger Effective Time, the Company has agreed not to solicit alternative
Acquisition Proposals from third parties or provide information to, and
participate in discussions and engage in negotiations with, third parties
regarding any alternative Acquisition Proposals, subject to certain exceptions
to permit the Company's Board of Directors to comply with its fiduciary
obligations. Notwithstanding the commencement of the No-Shop Period Start Date,
the Company may continue to engage in certain activities with respect to any
Excluded Party, including with respect to any amended or modified Acquisition
Proposal submitted by any Excluded Party following the No-Shop Period Start Date
until the earlier of (i) the Cut-Off Time and (ii) the time that such Person
ceases to be an Excluded Party. Prior to the receipt of the Requisite Company
Stockholder Approvals, subject to satisfaction of certain conditions and under
the circumstances specified in the Merger Agreement, either the Company Board
(acting on the recommendation of the Special Committee) or the Special Committee
may effect a Change of Recommendation (a) in response to a bona fide written
Acquisition Proposal that did not arise from a breach of the non-solicitation
provisions set forth in the Merger Agreement, if the Company Board (acting on
the recommendation of the Special Committee) or the Special Committee determines
in good faith, after consultation with its financial advisors and outside legal
counsel, that such Acquisition Proposal is a Superior Proposal or (b) in
response to an Intervening Event, if the Company Board (acting on the
recommendation of the Special Committee) or the Special Committee determines in
good faith, after consultation with its financial advisors and outside legal
counsel, that a failure to effect a Change of Recommendation would be reasonably
likely to be inconsistent with its fiduciary obligations under applicable law.
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The Merger Agreement contains certain termination rights for the parties,
including the right of either party, subject to specified limitations, to
terminate the Merger Agreement if the Mergers are not consummated on or before
November 27, 2023. The Merger Agreement also provides that upon termination of
the Merger Agreement in specified circumstances including termination by the
Company to accept and enter into a definitive agreement with respect to a
Superior Proposal or termination by Parent following a Change of Recommendation,
or the occurrence of other, customary circumstances, the Company must pay Parent
a termination fee of $150,350,000. If the Company terminates the Merger
Agreement to accept a Superior Proposal with (a) an Excluded Party prior to the
Cut-Off Time or (b) any Person prior to the No-Shop Period Start Date, then the
termination fee would be $69,392,000.
Certain investment funds affiliated with or managed by CD&R and Stone Point
(such funds, the "Guarantors") have delivered to the Company (a) limited
guarantees in favor of the Company and pursuant to which the Guarantors are
guaranteeing certain obligations of Parent and Merger Subs in connection with
the Merger Agreement and (b) executed commitment letters between Parent and each
of the Guarantors pursuant to which the Guarantors have, together, committed to
invest sufficient funds in Parent to finance the Merger Consideration, the
Option Consideration and the Closing TRA Payoff Amount.
The foregoing description of the Merger Agreement does not purport to be
complete and is qualified in its entirety by reference to the Merger Agreement,
which is attached hereto as Exhibit 2.1 and is incorporated herein by reference.
The Merger Agreement has been included to provide investors and security holders
with information regarding its terms. It is not intended to provide any other
factual information about the Company. The representations, warranties and
covenants contained in the Merger Agreement were made only for purposes of that
. . .
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
Exhibit No. Description
2.1* Agreement and Plan of Merger, dated as of February 27, 2023, by and
among Focus Financial Partners Inc., Ferdinand FFP Acquisition, LLC,
Ferdinand FFP Merger Sub 1, Inc., Ferdinand FFP Merger Sub 2, LLC, and
Focus Financial Partners, LLC.
10.1 Support Agreement, dated as of February 27, 2023, by and among Trident
FFP L.P., Trident VI, L.P., Trident VI Parallel Fund, L.P., Trident VI
DE Parallel Fund, L.P., the Company, Parent and certain affiliates of
Parent.
10.2 Form of TRA Waiver and Exchange Agreement
104 Cover Page Interactive Data File - the cover page iXBRL tags are
embedded within the inline XBRL document.
* Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The
Company hereby undertakes to furnish supplemental copies of any of the omitted
schedules upon request by the SEC.
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