Dynasty Financial Partners is not abandoning its proposed sale of shares to public investors. Instead, the network of 47 independent financial advisory firms with nearly $72 billion in client assets is waiting for Wall Street to recover from a miserable landscape for deals before moving on.
Citywire, a trade publication, reported on Aug. 22 that Dynasty had effectively dropped its anticipated IPO and instead sought to raise capital from private investors, including private equity. “Dynasty Financial Partners is shelving IPO plans” as the company “assesses a private fundraising,” the article said, citing four unnamed sources.
That’s not correct, according to a person familiar with the matter and Brian Hamburger, founder, president and CEO of MarketCounsel Consulting, a corporate and regulatory compliance firm for independent consultants. MarketCounsel joined Dynasty last December to buy shares in Smart-RIA Ventures, a software compliance firm for Registered Independent Advisors (RIAs), and Hamburger is a close friend of Shirl Penney, Dynasty President and CEO.
“Going out with an IPO was their goal and, as far as I know, that continues to be their goal — whether that’s a medium or long-term goal I don’t know, but the goal hasn’t changed,” Hamburger said. The person familiar with the matter, who was not authorized to comment due to securities regulations, called the Citywire report “not true.”
Sally Cates, a spokeswoman for Dynasty, declined to comment.
Dynasty caters to financial advisors who are leaving wirehouses and smaller brokerages to become independent. It also operates a platform for its network firms to outsource investment management. And it’s taking minor equity stakes in some of its network companies that would benefit from a successful bid.
In the fragmented space of independent wealth management, Dynasty would be a rare firm seeking public shareholders. Focus Financial, a serial acquirer of independent advisors, went public in 2018. Advisor and broker-dealer LPL Financial and Envestnet, an advisor financial technology company, both went public in 2010. The more common model in the industry is to sell a piece to private equity. That’s because of the high prices paid for independent companies and the distrust of the scrutiny, transparency, and regulation that come with being a public company.
Dynasty, based in St. Petersburg, Fla., filed for an initial public offering on Jan. 19 to raise $100 million on the Nasdaq. Based on that timing, “I was definitely counting in the second or third quarter when we expect them to go public,” Hamburger said.
Since then, the IPO market has performed at its worst in more than two decades amid persistent inflation, higher interest rates and an economy hit by the COVID-19 pandemic and Russia’s invasion of Ukraine. The Wall Street Journal reported Aug. 22 that traditional IPOs have made less than a sixth of what they have in the past this year — $5.1 billion versus about $33 billion. Around this time last year, the Journal reported, more than $100 billion was raised in bids. The current IPO market is the worst since 2009, when the financial crisis ended, the newspaper said.
“With all the other excess capital options available in the market, I don’t see why anyone would go public now,” said Jamie McLaughlin, a consultant to independent advisors based in Darien, Connecticut.
With the IPO count so far this year being just 5% from last year’s levels, now is not the time to move forward, Hamburger said. A number of Dynasty network firms are clients of MarketCounsel, which poses as an RIA incubator helping practices grow rapidly.
Hamburger said that he and Penney were in Saratoga, New York, in late July to see Penney’s professional horse racing team, Team Penney Racing, at the Saratoga races. “I asked if going public remains a goal for the company given where the IPO markets now compare to when they originally filed the S-1,” Hamburger said. Penney, he said, “confirmed that nothing has changed.”
Shirl Penney, the president and CEO of Dynasty Financial Partners, still has a horse in the IPO race.
According to a person familiar with the matter, Dynasty had been in talks with its leading investment bank Goldman Sachs for months about the sour IPO market. Hamburger said he told Penney in late July that “you have to put your ego aside and do what’s best for your stakeholders.
When asked if Dynasty was considering selling shares to private equity rather than selling shares, Hamburger said Penney asked him about other funding alternatives. “When you have a brand and a reputation along with a profitable business, the phone rings for private equity and strategic buyers,” he said. “I asked if this wasn’t an easier route to funding given where the IPO market is at the moment and he (Penney) admitted that they too are getting those calls but that their goals haven’t changed have and ultimately still want to go public.”
When asked if Dynasty needed to raise money one way or another, Hamburger said he asked Penney the same question in Saratoga. Penney, he said, replied that “there is need versus want. He said he could do a lot with an IPO that exceeds their current capabilities, but from a needs perspective, they executed and continued to grow a profitable business model. “
As part of its S-1 filing, Dynasty reported that revenue for the first three quarters of 2021 increased 50% to $49.2 million, while net income increased 273% to $10.6 million has increased. Most of his income comes directly or indirectly as a percentage of his RIA clients’ underlying advisory assets — a model McLaughlin said could raise questions about earnings calls with analysts at publicly traded companies.
Hamburger and the source said Dynasty planned to update its securities filings for the IPO — a sign, Hamburger said, “they are on track for an IPO.” Neither he nor the source knew when that would happen.
The IPO is expensive, Hamburger added, and the company has likely spent between $5 million and $10 million on its offering so far. “They pay bankers, accountants, lawyers.
Penney’s horses have earned nearly $1.6 million in racing prize money since 2006. On July 28th, Mr. Breadwinner, a thoroughbred colt, placed third in Saratoga.
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