USA finance

Not dead: Dynasty Financial’s IPO waits out horrid market for public offerings

Dynasty Financial Partners isn’t abandoning its planned sale of stock 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 offerings before proceeding.

Citywire, a trade publication, reported on Aug. 22 that Dynasty had effectively ditched its expected initial public offering and was instead looking to raise capital from private investors, including private equity. “Dynasty Financial Partners shelves IPO plans” as the firm “is exploring a private capital raise,” the article said, citing four unnamed sources.

That’s not accurate, according to a person familiar with the matter and to Brian Hamburger, the founder, president and CEO of MarketCounsel Consulting, a business and regulatory compliance firm for independent advisors. MarketCounsel joined Dynasty last December in buying stakes in Smart-RIA Ventures, a software compliance firm for registered independent advisors (RIAs), and Hamburger is a close friend of Dynasty president and CEO Shirl Penney.

“Going out with an IPO has been their objective and, last I know, that continues to be their objective — whether that’s a mid-term or long-term objective, I don’t know, but the objective has not changed,” Hamburger said. The person familiar with the matter, who was not authorized to comment due to securities rules, called the Citywire report “not true.”

Sally Cates, a Dynasty spokesperson, declined to comment.

Dynasty caters to financial advisors who are leaving wirehouses and smaller brokerages to go independent. It also runs a platform for its network firms to outsource investment management. And it takes smaller equity stakes in some of its network firms, which would stand to benefit from a successful offering.

In the fragmented independent wealth management space, Dynasty would be a rare firm to seek public shareholders. Focus Financial, a serial acquirer of independent advisors, went public in 2018. Advisor and broker-dealer LPL Financial and Envestnet, a financial technology company for advisors, both did so in 2010. The more common model in the industry is to sell a chunk to private equity. That’s due to high prices being paid for independent firms and wariness of the scrutiny, transparency and regulation that comes with being a publicly traded company.

Based in St. Petersburg, Florida, Dynasty filed to go public on Jan. 19, seeking to raise $100 million on Nasdaq. Based on that timing, “I certainly was looking at sometime in Q2 or Q3 would be when we expect them to proceed to the public markets,” Hamburger said.

Since then, the IPO market has set itself up to be the worst in more than two decades amid persistent inflation, higher interest rates and an economy dented by the COVID-19 pandemic and Russia’s invasion of Ukraine. The Wall Street Journal reported Aug. 22 that traditional IPOs so far this year have raised less than one-sixth of what they historically do — $5.1 billion versus around $33 billion. This time last year, the Journal reported, offerings had raised more than $100 billion. The current IPO market is the worst since 2009, when the financial crisis was ending, the paper said.

“Given all of the other options that are available, with a surfeit of capital available in the market, I don’t see why anyone would IPO right now,” said Jamie McLaughlin, a consultant to independent advisors who’s based in Darien, Connecticut.

With the IPO tally so far this year at just 5% of year-ago levels, now is not the time to move ahead, Hamburger said. A number of Dynasty’s network firms are clients of MarketCounsel, which casts itself as an RIA incubator that helps practices scale up quickly.

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, compete at the Saratoga tracks. “I inquired whether the IPO continues to remain an objective for the company, given where the IPO markets are now compared to when they originally filed the S-1,” Hamburger said. Penney, he said, “confirmed nothing has changed.”

Shirl Penney

Shirl Penney, the president and CEO of Dynasty Financial Partners, still has a horse in the IPO race.

Dynasty had been discussing the sour IPO market for months with its lead investment bank, Goldman Sachs, according to the person familiar with the issue. Hamburger said he told Penney in late July that “you’ve got to put your ego to the side and do what’s best for stakeholders. Sometimes the best thing is to not engage in the trade, even though that makes you susceptible to criticisms.”

Asked if Dynasty was considering selling to private equity instead of issuing shares, Hamburger said Penney had asked him about other alternatives for funding. “When you have a brand and reputation along with a profitable company, the phone’s ringing off the hook from private equity and strategic acquirers,” he said. “I questioned whether those aren’t an easier path to funding, given where the IPO market sits right now, and he (Penney) admitted that they, too, get those calls, but that their objectives haven’t changed and ultimately they still want to go public.”

Asked if Dynasty needed to raise cash one way or the other, Hamburger said that he asked Penney the same question in Saratoga. Penney, he said, replied that “there’s need versus want. He said there was a lot he could do with an IPO that surpasses their current capacities, but from a needs perspective, they were executing and continuing to build on a profitable business model.”

As part of its S-1 filing, Dynasty reported that revenues rose 50% in the first three quarters of 2021 to $49.2 million, while net income surged by 273% to $10.6 million. The majority of its income stems directly or indirectly as a percentage of the underlying advisory assets of its RIA clients — a model McLaughlin said could raise questions on earnings calls with analysts of publicly-traded companies.

Hamburger and the source said that Dynasty planned to update its securities filing for going public — a sign, Hamburger said, that “they’re on the road to an IPO.” Neither he nor the source knew when that would happen.

Going public is expensive, Hamburger added, and the firm has likely spent from $5 million to $10 million so far in its bid. “You’re paying bankers, accountants, lawyers. To me, that’s the tell.”

Penney’s horses have won nearly $1.6 million in racing prize money since 2006. On July 28, Mr. Breadwinner, a thoroughbred colt, finished third at Saratoga.


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