Focus Financial Partners Inc (FOCS) Q4 2020 Earnings Call Transcript

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Focus Financial Partners Inc (FOCS)
Q4 2020 Earnings Call
Feb 18, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning. I would like to welcome everyone to the Focus Financial Partners 2020 Fourth Quarter and Full Year Earnings Call. Joining today's call are Rudy Adolf, Founder and CEO; Jim Shanahan, Chief Financial Officer; Rusty McGranahan, General Counsel; and Tina Madon, Head of Investor Relations and Corporate Communications. [Operator instructions]

As a reminder, this conference is being recorded. Mr. McGranahan. Please go ahead.

J. Russell McGranahan -- General Counsel

Good morning, everyone. Before we begin, let me remind you that during the course of this call, we may make a number of forward-looking statements. We call your attention to the fact that Focus' results may of course differ from these statements. These statements are based on assumptions made by and information currently available to Focus Financial Partners and involve risks and uncertainties that could cause the results of Focus to materially differ from these statements.

Focus has made filings with the SEC, which lists some of the factors that may cause its results to differ materially from these statements, including, without limitation, uncertainties surrounding the current COVID-19 pandemic. And finally, Focus assumes no duty and does not undertake to update any such forward-looking statements.

With that, I will turn it over to our Founder and CEO, Rudy Adolf. Rudy?

Ruediger Adolf -- Founder, Chief Executive Officer and Chairman

Thanks, Rusty. Good morning everyone and welcome to our call today. As always we value your continued interest in Focus. 2020 was an unprecedented year and I'm extremely proud of what we accomplished. We delivered record financial and operating results despite the pandemic related challenges. We are in a unique position within financial services, delivering strong growth and margin expansion during a time of crisis, while simultaneously reducing our net leverage ratio.

Our business demonstrate its resiliency and consistently outperformed relative to our expectations. In many ways, the story of 2020 while it's scale matters. Our scale was instrumental in helping us not just weather the storm, but to move past it and thrive. The depth spreads interversification of our partnership, combined with our strong M&A momentum and robust value-added services, we are all instrumental to this outcome.

These dynamics position us for what we believe will be an even stronger year in 2021. We delivered excellent results for our shareholders, generating nearly $1.4 billion in full year revenues, the highest in our history, together with adjusted net income excluding tax adjustments per share of $2.46 and tax adjustments per share of $0.47. These results demonstrate the value of a well-designed financial model and the outstanding job our partners did in managing their business.

Our cash flow grew substantially, with 2020 last 12 month cash flow available for capital allocation up 22.6% and reaching $200.5 million, enabling us to limit our debt usage in funding our M&A activities, as our transaction volume increased. The tax efficiency of our acquisition structure continues to generate substantial value for shareholders and enhances our cash flows.

Our partner firm successfully navigated an evolving macro backdrop, remaining agile and demonstrating an unwavering commitment to exceptional client service. 2020 was a year in which the value of prudent fiduciary advice was especially apparent, the finest hour for our industry as a whole and our partners were well equipped to face the challenges posed by the pandemic. They did not experience any tangible client attrition, despite volatile markets.

In 2020, we completed 25 transactions, capping one of the best years in our history for M&A volume. We added seven new partners and completed 18 mergers on behalf of our partner firms. We expanded our presence in key wealth management markets across the U.S. and internationally, and extended our track record of acquiring excellent firms that are value accretive.

Through mergers, our partner firms are aggressively capitalizing on the substantial industry growth opportunity emerging. Of the 10 partner firms who completed a transaction last year, three completed their first ever merger with over 50% of our 71 partner firms having completed at least one merger since joining Focus, and 20% completing three or more. We also remained at the forefront of the industry by providing innovative business in client solutions last year.

These resources enable our partner firms to meet the growing needs of their clients in an increasingly complex operating environment. By taking advantage of our scale, best practices and expertise, our partners are able to deliver ever to their client, which is an important catalyst for organic growth. For example, our partners continued to benefit from initiatives in business development, technology enhancement, including cyber security operations and the enterprising optimization. They remain actively engaged in this areas over the coming years.

We also continue to grow Focus Client Solutions or FCS, our cash-credit offering. Last year, FCS advised on loans and other credit structures approaching $1 billion for partner clients. Last month, we announced a joint venture with Orion Advisor Solutions, which will make the cash-credit and related services developed by FCS available to more than 2,000 wealth management firms on Orion's Wealth Tech platform.

Orion is a proven leader in advise technology with whom we have a long-standing relationship. This is a significant new initiative in beta stage that leverage the collective expertise of both FCS and Orion. The FCS team manages all aspects of delivering the services, making it extremely convenient for advisors to use them. Strategically, the JV enhances our competitive position by further demonstrating our leadership in shaping the advisor ecosystem. But an important and innovative initiative, we do not expect the joint venture to have a meaningful impact on our results of operations in the short term, but believe that this joint venture will create important value over time.

The Connectus model is another outstanding example of how we are leveraging our scale, value-added resources and expertise to help wealth management advisors to better serve the clients, optimize the efficiency and sow for growth. Connectus complements our growing partnership and addresses an important strategic need in the independent wealth management market. It adds to our existing value proposition by enabling founders and teams who want to continue managing their client relationships and put the cultures while gaining the operational efficiencies of shared services.

We anticipate that Connectus will continue to expand globally and believe that it could quickly become one of our largest partner firms. Yesterday we announced the launch of Accelerate, an innovative new program, that is unique to Connectus. Accelerate is highly curated leveraging long-standing relationships with premier service providers already used extensively by Focus 71 partner firms. Through it's emphasis on shared resources, Accelerate will create significant efficiencies and scale benefits for advisors and clients alike. It delivers capabilities across five business components which will substantially enhance Connectus advisors abilities to accelerate growth by offering comprehensive integrated and highly personalized client solutions.

Clearly in 2020, we demonstrated Focus value to our partners and clients and therefore our ability to sustain growth, improve margins and maintain our net leverage ratio targets. Therefore, as we transitioned to 2021, we are reaffirming our strategic vision for the growth and scale that we believe Focus can achieve by 2025, revenues of approximately $3.5 billion and approximately 100 partner firms. Also, we plan to revisit our target for profitability as the pandemic subsides.

Our initial goal of adjusted EBITDA of approximately $840 million was based on a margin of 24%. We believe our partners have learned how to become more efficient during the pandemic and while still early days, we believe that as Connectus scales, it will further enhance our long-term adjusted EBITDA margins. We are operating in an industry-leading scale and have substantial momentum, which is amplified by Connectus. Based on current market levels, we believe these dynamics will enable us to deliver full-year revenue and adjusted net income excluding tax adjustments per share growth in excess of 20% in 2021 and to return to double-digit organic revenue growth, while maintaining our targeted net leverage ratio of 3.5 to 4.5 times.

On the M&A side, we have closed one additional Connectus deal in the U.K. and announced one partner firm addition year-to-date and we dissipate announcing in another partner firm acquisitions shortly, which will be a substantial transaction for us. We expected our M&A activity in Q2 will be strong and we have a significant pipeline with a good mix of direct deals, mergers and Connectus acquisitions that carries well into 2021.

We also anticipate that we will further expand our international presence and Connectus will accelerate the pace of activity. After an outstanding Q4, we are continuing to benefit from the search in industry M&A activity. Based on where we stand today, we expect that 2021 will be an exceptional M&A year for our business. We estimate that we will have about $1 billion in firepower to invest over time between our unfunded revolver, cash on hand and cash flow generation. Our value proposition continues to resonate strongly in the industry and mergers are adding significant value to our partners, but we will remain disciplined in our acquisition process as always. We see many attractive opportunities to deploy capital.

In closing, we are extremely pleased with our 2020 financial performance and strong finish to the year in terms of M&A momentum. As we turn to 2021, we are confident in the forward potential of our business as we advanced toward our 2025 objectives. There is a phased evolution to a business like ours. The scale and profitability we have enables us to invest in our future growth in ways that would not have been possible even three years ago and 2020 further reinforce the value creation of our scale advantages.

The diversity of our partner portfolio creates numerous opportunities to grow and we believe that our unique model will continue to make us the partner of choice. I have shared end growth thinking before, but thought it was worth repeating. Bad companies are destroyed by crisis, good companies survived them, great companies are improved by them. The crisis of 2020 strengthened Focus beyond our expectations and significantly advanced our unique competitive positioning. I'm very excited about our momentum in 2021 and beyond. And I look forward to seeing how the year unfolds. With that, let me turn the call over to Jim. Jim?

James Shanahan -- Chief Financial Officer

Good morning, everyone. Despite an unprecedented year with many uncertainties, our business demonstrated remarkable resiliency, our growth and financial performance were strong and our M&A momentum was excellent. The ongoing stability of our revenue model and high proportion of fee-based and recurring revenues continue to drive strong growth in our cash flow generation. It bears repeating that the combination of consistently high cash flows invested in accretive transaction and the large and growing tax shields created by our M&A activities are unique in the wealth management industry and generate substantial shareholder value.

Now turning to the details of our P&L. Our Q4 results were excellent coming in well ahead of our expectations. We recorded revenues of $379.7 million, 10% above the top end of our estimated range of $335 million to $345 million, due in part to our organic revenue growth rate of 7.3% versus our initial estimate that would be essentially flat. This revenue outperformance was the result of better than expected family office type revenues associated with clients in the entertainment industry where client activities are improving, favorable market conditions for our revenues billed and arrears and certain non-recurring revenues associated with client activities and incentive fees earned by certain of our partner firms, including the OCIO business we recently acquired.

Approximately $19 million of this revenue outperformance will not repeat in Q1 but could occur in future periods. Our Q4 revenues of $379.7 million were up 11.6% year-over-year with approximately $24.6 million or 63% of that increase coming from organic growth by our partner firms, inclusive of mergers demonstrating the power of scale across our 71 partner firms. The remaining $14.8 million or 37% of the increase came from partner acquisitions during the year. Of the approximate $19 million revenue outperformance that will not repeat in Q1, approximately $13.8 million of that favorably impacted our Q4 organic revenue growth rate. Excluding this amount, our Q4 organic revenue growth rate would have been 3.2% which reflects strong year-over-year growth from an exceptionally strong Q4 2019 and also considering the live event revenue headwinds that our family office firms continue to experience. Our Q4 adjusted EBITDA was $90.7 million, 9.3% higher than the strong prior-year period, and our adjusted EBITDA margin was 23.9%, slightly ahead of our expectations. Our adjusted net income excluding tax adjustments per share was $0.72, up 14.3% compared to the prior year period, and our tax adjustments per share were $0.12, unchanged from the prior year period.

On a full-year basis, our revenues were a record $1.36 billion, and 11.7% higher than the prior year, driven in part by an organic revenue growth rate of 7%. Our adjusted EBITDA was $321.8 million, 19.2% higher than the prior year and our adjusted EBITDA margin was 23.6%, 1.5 percentage points higher, primarily reflecting lower levels of SG&A expenses relative to revenue as a result of COVID. Adjusted net income excluding tax adjustments per share was $2.46, up 25.5% year-over-year and our tax adjustments per share were $0.47, up 11.9% from the prior year.

Despite the pandemic related slowdown in first half M&A activity, 2020 was one of our strongest years ever. We closed seven new partner firms and 18 mergers for a total of 25 transactions. In Q4, we closed on five partner firms and 10 mergers, and Q1 to date, we have closed a merger for Connectus in the U.K. We also signed a new partner firm Hill Investment Group and anticipate signing the additional new partner firm Rudy referenced shortly, which has about $5 billion in client assets.

We estimate that the five partner firms added in Q4 will add an incremental $2.7 million in Q1 adjusted EBITDA due to the mid-period closings. We estimate that these two partner firm transactions could contribute approximately $21 million in total revenues and approximately $8 million in acquired base earnings on an annualized basis. Due to the timing, they will not significantly impact our Q1 results. As Rudy noted, our M&A momentum heading into 2021 is excellent. M&A activity across the industry is increasing and our model continues to resonate for direct deals and mergers alike.

Connectus gives us a third acquisition model, further expanding our addressable market, both in the U.S. and internationally. The opportunity set is considerable in Australia, Canada and the U.K., the three countries where we have focused our expansion efforts. According to industry sources in U.S. dollars. approximately $1.7 trillion in client assets is managed by approximately 100,000 advisors in Canada, and in Australia 25,000 advisors manage approximately $600 billion. While the actual closings or transactions is always hard to predict, our pipeline for 2021 is substantial across all components of our M&A business, including at many of our partner firms who are increasing their merger activity to accelerate their growth.

Connectus also has a strong pipeline and will further expand its global footprint in 2021. In anticipation of this, we increased the size of our term loan by an incremental $500 million in January of this year, upsizing from our initial $375 million launch in heavily oversubscribed transaction. We used a portion of the proceeds to repay the borrowings under our revolver to reset our dry powder. This transactions do not impact our net leverage ratio, as Rudy mentioned, with a firepower about $1 billion. we are well positioned to capitalize on future acquisition opportunities.

However, our acquisition strategy remains based on a highly selective approach, supported by strong multiple discipline. We are stringent about only pursuing acquisitions that meet our return criteria and are a good fit for our partnership. We are also disciplined about the multiples we pay, which are competitive but reflect the unique benefits of becoming Focus partner firm. We acquire high quality entrepreneurial firms with substantial growth potential who want to maintain their operational independence and will benefit from our scale advantages, value add resources, and permanent growth capital.

Now, for a few comments on our Q4 expenses and cash flows. Management fees are second largest operating expense which are tied to the profitability of our partner firms were approximately $102.4 million or 27% of our revenues. We and our partner firms remain disciplined and nimble in controlling discretionary expenses, even with the increase in M&A activity. Similar to Q3, discretionary expenses remained low as most of our partner firms continued to work remotely. Additionally, our borrowing costs remained low as we are significant beneficiary of the low-interest rate environment.

In Q4, we recorded non-cash charges totaling $19.8 million, reflecting changes in the fair value of estimated earn outs pursuant to our Monte Carlo Simulations on their GAAP. Stronger performance and market conditions drove an increase in the estimate of these liabilities as of December 31st. Our full-year 2020 cash flow available for capital allocation was $200.5 million, 22.6% higher than the prior year period. The increase resulted from growth in the business, the new partner firms we acquired and our increased adjusted EBITDA margin. We paid $7.7 million in earn outs during the fourth quarter and we estimate that we will pay about $10 million in Q1. Our cash flow for future periods will continue to be enhanced by $1.7 billion on amortized gross tax shield as of December 31st.

Now turning to our Q1 expectations. Given that the pandemic-related uncertainties continue to persist, we'll continue to provide quarterly guidance. We estimate that our Q1 revenues will be in the range of $375 million to $385 million. This range reflects an estimated organic revenue growth rate of approximately 7% to 10%. As mentioned earlier, our Q1 guidance excludes the $19 million non-recurring revenue from Q4, as well as an estimated $10 million in typical Q1 revenue seasonality related to family office revenue activities, although we expect the $10 million in seasonal revenues to recur in Q2.

Additionally, we estimate that our Q1 adjusted EBITDA margin will be about 24.5% and with current market conditions, we expect our full-year 2021 adjusted EBITDA margins to be 24% or better. Now turning to our balance sheet, as of December 31st, we had approximately $1.5 billion in debt outstanding and our net leverage ratio was 3.89 times. At current market levels and with the acquisitions we expect to close in Q1. we anticipate that our Q1 period end net leverage ratio will be between 3.75 to 4 times.

We remain committed to maintaining our net leverage ratio between 3.5 and 4.5 times, and we continue to believe this is the appropriate range for our business, given our highly acquisitive nature and highly attractive cost of debt. We continue to prudently manage our balance sheet, it is also important to remember that our strong cash flow generation enables us to limit our use of debt as we grow our business.

To conclude, we delivered a very strong quarter in Q4 even when compared to the excellent Q4 2019 we had. And our 2020 results overall were excellent, particularly given the macro backdrop. Our model has proved its resiliency and stability in unprecedented market conditions, and our partner firms performed exceptionally well. We further evolved our acquisition strategy through Connectus and enhanced the business and client solutions we offer to our partner firms. We are optimistic about the outlook for our business in 2021 and we are well-positioned to continue to capitalize on a secular tailwind shaping this industry.

I'll now turn the call over to the operator for Q&A. Operator?

Questions and Answers:

Operator

[Operator instructions] Our first question comes from Craig Siegenthaler with Credit Suisse. Please proceed with your question.

Craig Siegenthaler -- Credit Suisse -- Analyst

Hey, good morning, Rudy. Hope you're doing well.

Ruediger Adolf -- Founder, Chief Executive Officer and Chairman

Hi, Craig. How are you?

Craig Siegenthaler -- Credit Suisse -- Analyst

I'm good. I'm good. So my first one is on M&A. And we were pleased to see the pickup in acquisition and merger announcements in the back half of last year, but can you talk about how momentum has continued into 2021? And do you think 2021 has the potential to be a record M&A year for Focus? So more than 25 transactions.

Ruediger Adolf -- Founder, Chief Executive Officer and Chairman

Yeah. Hi, Craig. As we indicated in our remarks, our pipeline is excellent. We -- quite frankly in many ways we have almost busier than ever. Last year, we did 25 deals, by the way, the prior year was our record year, that was 34 deals, and then we did 25 deals in the year before. So, we see a very good mix of holding company transactions. These are usually billion plus transactions, we see quite a number of merger opportunities for partner firms including relatively large mergers. Last year we did billion plus merger transactions, which is more unusual. Quite frankly, we are very -- very excited about the international. In fact on my call today, I'm joined by my co-founder Rajini. Rajini, do you want to spend a second on international and on Connectus deals.

Rajini Sundar Kodialam -- Co-Founder, Chief Operating Officer and Director

Sure. Thank you, Rudy, Craig, we are very bullish on our pipeline across and definitely international and Connectus. My day starts these days with the United Kingdom, meanders through North America and sunsets with Australia. Our value proposition, the Focus value proposition and the Connectus value proposition is resonating globally, and we believe the combination of the unique resources that we bring, entrepreneurial flexibility, true value added support, and permanent capital makes us a rather winning combination for the right firms across these geography.

Craig Siegenthaler -- Credit Suisse -- Analyst

Great, thank you for the color there. I did have one real simple follow-up. I think the last time you gave us AUM, it was roughly $200 billion. You probably grown a lot since then, just given the markets and all the acquisitions announced. Do you have were AUM was either at December 31st or where it is today, roughly.

Ruediger Adolf -- Founder, Chief Executive Officer and Chairman

Yeah, absolutely. That. So, as you know, we don't see AUM is a terrific number for us, it's yeah, it's really a business benchmark. Having said that, actually, I'm glad you're asking because this is the first time, were our CFO, Jim Shanahan let's me talk about $250 billion in client assets or above. So we are -- obviously we have grown significantly, but as we always said consistently since the time of our IPO, it's an interesting number to know, but it's not really a core business driver. Yeah, in the way we're operating the business.

Craig Siegenthaler -- Credit Suisse -- Analyst

Understand. Thank you, Rudy.

Ruediger Adolf -- Founder, Chief Executive Officer and Chairman

Thanks.

Operator

Thank you. Our next question comes from Mike Carrier with Bank of America. Please proceed with your question.

Mike Carrier -- Bank of America -- Analyst

Good morning and thanks for taking the questions. In the past, you guys had a target audience for possible M&A, but just wanted to get your take on how that opportunity expand, with the launch of Accelerate with Connectus and Connectus. And how that expands not only like the opportunity, but also the potential revenue and margin opportunity for the firm over time.

Ruediger Adolf -- Founder, Chief Executive Officer and Chairman

Yeah, so as you know, we have always had a really client-centric view to our M&A activities, meaning it really starts with your, what are these services that high net worth -- and ultra high net worth families need and then we are basically looking whether these are RIAs, weather these are high end multifamily offices. We recently targeted more, we have hit our first OCIO joined us. So it always started with what are these services that client needs and how can we surround this client with this capabilities. And yes, you're correct both connectors and now the accelerate announcement from yesterday broadens our M&A footprint. In so many ways connectors fills in the gap between direct holding company deals, which of course we have done since day one, merger transactions, which is obviously the largest number of deals that we did, last year it was 18, were basically, if firm keeps its identity and brand, but at the same time it leverage this very powerful infrastructure that we have built that ultimately gives them efficiency and growth opportunities. That quite frankly we believe, a quite unique in this industry. Yeah. And just from a margin perspective. Obviously, reported 23.9, our guidance for Q1 is 24.5. The Connectus activity was at the end of the year, we did a three merger opportunities there, one in the U.S. and we just announced one of the UK. So over time, we'll revisit our long-term EBITDA guidance and how Connectus contributes to that.

Mike Carrier -- Bank of America -- Analyst

Okay, great. And then just acting as a follow-up, some of the new services and best practices that you guys have been adding on the platform, for the firms views getting sense on, how that has improved productivity, organic growth at the firms.

Ruediger Adolf -- Founder, Chief Executive Officer and Chairman

Yeah, of course, most of these we have launched quite recently. As you know, we have 2 types of programs, we have Focus Business Solutions. This is where we use and really have for quite a while, our scale, our purchasing power, and our expertise to ultimately help our firms simply grow faster and improve the margins and quite frankly, when you're looking at the growth numbers here that we publish about firms growth, partner -- for individual, partner firm growths, yeah, of course they're very important contributor for this Focus Business Solutions.

Client solution, yeah, we talked about cash and credit, last year we have placed roughly about, supported $1 billion in either cash or lending solutions on behalf of partners, and services beyond that are still in the works. Ultimately help -- it provide we say private banking capabilities. the capabilities of a high-end private banker without any of the package to our partner firms. And yes, we believe over time that these will be very substantial enablers of our partner firms and of course ultimately this will translate into economics. We also recently announced our Orion joint venture. I am sure you have seen it. It's still in the beta stage, but this is where we basically make our cash credit capabilities available to over time, they're ultimately all Orion clients, who want to opt into these programs. Orion serves 2,000 advisors is of course one of the leading technology providers in this industry and somebody that we have -- a group that we have worked with for many, many years. So yeah, not in '21, but over time, we believe this is also going to be a meaningful contributor.

Most importantly, you've seen our guidance, we expect to go to double-digit organic growth numbers in '21. And as you know, historically, our organic growth was even higher than that. So it's really all of these programs together that ultimately we believe will significantly boost our organic growth, that you have seen in the first quarter and for the rest of the year.

Mike Carrier -- Bank of America -- Analyst

Okay, great, thanks a lot.

Operator

Thank you. Our next question comes from Gerry O'Hara with Jefferies. Please proceed with your question.

Gerald E. O'Hara -- Jefferies & Company -- Analyst

Great, thanks. Maybe, maybe a 2-part question just around revenue. And if you could maybe give a little color as to what some of the drivers are that led to a I guess higher than anticipated family office revenue rebound in the quarter and then also maybe more broadly, how we should think about what appears to be year end incentive fees benefits, if it's more broadly spread out throughout the year. Any context or color there would be helpful? Thank you.

Ruediger Adolf -- Founder, Chief Executive Officer and Chairman

Yeah, I'll let Jim goes with some of the numbers, but what we have seen is of course as you know the business overall did just extremely well last year, but we did have and we publicly disclosed, we have some drag here about $12.5 million per quarter that came from the live entertainment business. What basically happened this year, there was a morphing of this business, meaning you have still done already live events, but people are in YouTube, people are in different channels, people get back into the business that ultimately leads to an acceleration in this segment. We are not quite where we need to be or have been, I should say, but we quite frankly see this reacceleration. That we are seeing partially here in the fourth quarter. Jim, you want to go through some of this.

James Shanahan -- Chief Financial Officer

Yeah. Yeah, So as Rudy was mentioning when we are sitting here in November in a COVID environment, we're looking at the activities that these type of clients. Clients are intelligent in the entertainment industry. They find new ways of generating revenue and activities, Netflix and Prime and things like that, as Rudy was mentioning, and it probably came in about $5 million higher than we expected based on these activities at the end of the year in November and in December and we really like what we see going into '21 that these activities will continue to approve. Obviously, live events still aren't happening but they're learning ways of doing other activities.

And as you recall, we're essentially the outsourced CFO for all these clients dealing with their taxes, their contract reviews, their insurance needs, all those types of things. So as those activities increase with the clients, certainly our revenues with those activities increase as well. And then also, there were some incentive fees, incentive fees are not a large part of our business at all. $19 million in Q4, we have obviously an annual revenue base over $1.3 billion and these kind of came in December when you measure them. They generally don't come in through the year.

So it's about $19 million, I would say, plus or minus $15 million of it was probably incentive fee related that was in Q4. So that drove the outperformance against the top end of our guidance for Q4.

Gerald E. O'Hara -- Jefferies & Company -- Analyst

Okay, thanks for taking my questions.

Operator

Thank you. Our next question comes from Alex Blostein with Goldman Sachs. Please proceed with your question.

Alexander Blostein -- Goldman Sachs Group -- Analyst

Great, thanks, good morning, Rudy. Good morning, Jim. I would love to expand on Connectus a little bit more. I know, Rudy, you provided sort of higher-level comments around how that addresses your guys in addressable market. But can you help us understand, I guess, a couple of things around specific sort of like what's the EBITDA contribution of Connectus today, what is their EBITDA margin today to kind of help us think through growth and scaling on that platform and then slightly bigger picture, but do you think that activity at Connectus over time could spill into your other partner firms, meaning that they could start to pursue more sort of standardization and kind of learning the lessons from Connectus and the benefits there maybe some of those RIA platforms are getting by being more standardized across kind of back office and middle office to kind of expand for the rest of the term?

Ruediger Adolf -- Founder, Chief Executive Officer and Chairman

Yes, absolutely Alex. So we just launched it, so it's too early to talk about specific numbers although you have seen here, we have already announced a number of initial transactions. What's important to highlight is we believe this is probably the first time where a program has been launched on a global scale and that is very unique and we ultimately believe -- ultimately a very powerful proposition, but rather than hearing from me, let's talk to the real brain behind Connectus. Rajini, do you want to handle some of Alex's questions?

Rajini Sundar Kodialam -- Co-Founder, Chief Operating Officer and Director

Yes, thanks, Rudy. Alex, of course, we are entrepreneurs and we always look to add shareholder value. But like Rudy said Connectus is just starting. We are very excited about the Accelerate program that we launched yesterday and Connectus is a global firm, Accelerate is a global program that brings together every element that is needed to fulfill the promise of Connectus, which is growth, advisor efficiency and expanding the client value proposition. Nothing in Accelerate has a build enable comp, it is all being constructed based on multiple conversations with our partner firms and the needs they have expressed for their clients. A unique inter-leverage between Focus and Connectus comes from the fact that what we have built in Accelerate stands on the shoulders of years of institutional expertise and the scale of the 71 Focus partner firms and the vendor relationships that we have developed. This is what enables us to bring together this ecosystem. What is unique about it is not just the fact that we have put these vendors together to provide technology content and services, we have interwoven Focus proprietary solutions into this like Clarity, like our FCS solutions and on top of that, we are bringing intelligent smart integration that is what makes this unique for us. Will there be global customization by country? Absolutely. Some of these vendors will be common across, some of them will not. There has to be global customization. Every Connectus firm will use accelerate but accelerate is available by choice to every Focus partner firm. So over time, do we see the inter-leverage, do we see the benefit across the Focus family? Absolutely.

Alexander Blostein -- Goldman Sachs Group -- Analyst

Great, thanks for that, very interesting. Another follow-up, maybe and I'm not sure if you guys will be able to answer it, but I'll try anyway. So $1 billion of Dry Powder that you guys talked to, obviously you highlighted very robust pipeline multiple times on this call. Any way to help us frame how quickly you ultimately expect to deploy that $1 billion?

Ruediger Adolf -- Founder, Chief Executive Officer and Chairman

Well I knew you're going to ask that, Alex. So, and obviously, it's a very good question. But we never thought about it this way. It's not that we got this $1 billion sitting in our checking account digits and it's burning a hole into our pockets. This is capital that we can draw on if and when we need and what has made this model so successful is ultimately we have been very disciplined. In fact, Alex, when you look at the multiples to be paid in 2020 versus 2019 versus 2018, they are basically constant. In fact, I had early may have touched down, but again, so basically a constant, which ultimately means is because our cost of debt, weighted average cost of capital is down based on the interest rates, correct, frankly our returns continue to be very high. You probably remember you have 25% returns in average returns and over 50% of our deals create more than 30% returns. So it's not about the speed of deployment, it's about the quality of deployment. And yes, we are very confident that we will be able to deploy a good part of this in a relatively short time frame. But there is absolutely no rush here. What I always tell the team is -- the only thing gets worse to not doing a deal is doing a bad deal and this discipline has really helped us build this business over the years.

Alexander Blostein -- Goldman Sachs Group -- Analyst

Great, I thought that would be your answer but I figured I'd try anyway. All right, thanks, everybody.

Ruediger Adolf -- Founder, Chief Executive Officer and Chairman

That's right.

Operator

Thank you. Our next question comes from Chris Shutler with William Blair. Please proceed with your question.

Chris Shutler -- William Blair & Company -- Analyst

Everybody, good morning. Few questions on Connectus. So first, should we think about the multiples that you're paying in Connectus as being very close to what you would pay in traditional mergers and then in your traditional model, I think the employment agreement with the partners typically means they're locked in for a handful of years, so how does that differ with Connectus? And then lastly could Connectus be, sounds like it's a healthy part of your pipeline, but could it be 25% to 30% of the EBITDA that you had this year?

Ruediger Adolf -- Founder, Chief Executive Officer and Chairman

Yes. Hi, Chris. I'm so glad we have Rajini on the phone here because she can answer some of these questions, but clearly the -- its first and foremost, as I said in the prior question, its first and foremost filling in the gap that we had in our M&A model. Ultimately, quite frankly, it was something that Rajini and her team really developed from some of the learnings in the U.S. and experience in U.S., but for the Australian market. We ultimately believe that the effective multiple because of this highly synergistic transactions because of the shared infrastructure ultimately the effective multiples will be just as attractive or quite frankly even more attractive than what we have today. But Rajini you want to add something?

Rajini Sundar Kodialam -- Co-Founder, Chief Operating Officer and Director

Absolutely. As Rudy said that is the premise of Connectus. We have a robust pipeline. The only thing that I would like to add to what Rudy said is Connectus certainly expands the market for us because it caters to the need of an advisor base that is asking for something different than what our direct model and our mergers offer. It is a hybrid and yes the shared services platform is definitely going to help both with revenue and with advisor efficiencies, which will eventually be accretive. But what we do want to emphasize is Connectus does not change the quality and caliber of the firms of the advisors that we're looking for, the disciplined approach that we have to affiliating ourselves with client centric fiduciary advisors is consistent irrespective of which model focuses apply.

Ruediger Adolf -- Founder, Chief Executive Officer and Chairman

Yeah, and we have to think contractual protections as we have been in our traditional transaction, so really no change from this perspective.

Chris Shutler -- William Blair & Company -- Analyst

Okay, thank you. And then just one for Jim, just the -- I think you gave the earn-out payments expected for the first quarter. Can you give us a rough number for 2021?

James Shanahan -- Chief Financial Officer

Yeah, we don't provide guidance at this point on the full year, Chris. It's just -- it's hard to estimate. We'll be publishing the 10-K shortly, so the aggregate earn-out under the the GAAP methodology of Monte Carlo's acquisition is about $170 million. That gets paid out over several years and we've given guidance of $10 million for Q1. It's just -- it's too hard to estimate with precision the annual basis what these earn-outs maybe.

Chris Shutler -- William Blair & Company -- Analyst

Okay, got it. Thank you.

Operator

Thank you. Our next question comes from Patrick O'Shaughnessy with Raymond James. Please proceed with your question.

Patrick O'Shaughnessy -- Raymond James -- Analyst

Hey, good morning. So, with Connectus, how do you make sure that incentives of the selling firms are going to be aligned with yours over the long-term given that you are going to be owning 100% of the economics? I think historically with the partner firm model, you own 40% to 60%, you have earnings preference. and so clearly economically the selling partner is aligned. How do you make sure that the selling partners with Connectus are going to be incentivized to continue to grow the franchise?

Ruediger Adolf -- Founder, Chief Executive Officer and Chairman

Yeah, absolutely. And as I said, like we have Rajini, here. But first, more than any contractual or other provisions, it's simply be really careful who you let into the partnership here. And we continue, as Rajini just said, to be very selective. We make sure that ultimately the interest of these partners are aligned with us and quite frankly, it's ultimately through a formulaic sharing in the economics of the business plus some incentives on top of it. So again it's a very close alignment, slightly different to what we have with our -- in our core business. But ultimately, because we control the platform here, because we ultimately we are the platform for these partner firms. We, of course, have much more influence over this part of the business. And so we are very, very comfortable that based on all the expertise that we have built in the formulaic approach here on the economics that ultimately these partners are just as aligned as they are with our core transactions. Rajini, anything you want to add?

Rajini Sundar Kodialam -- Co-Founder, Chief Operating Officer and Director

Sure the economic alignment and ongoing incentives are very inherently a part of Connectus, and as part of Connectus with every firm, just like every Focus partner firm, we make sure that it's not just Gen 1 that is aligned but Gen 2 and Gen 3 that is aligned. That is a core aspect of our model, and that is completely consistent across Focus, definitely for Connectus.

Patrick O'Shaughnessy -- Raymond James -- Analyst

Great, thank you. And then a question about the comparative landscape in terms of acquisitions. Obviously there's a lot of money chasing U.S. RIAs right now, a lot of private equity backed consolidators out there. Is it less competitive when you're bidding for advisory firms outside of the U.S.?

Ruediger Adolf -- Founder, Chief Executive Officer and Chairman

Yeah, so first, fourth quarter last year we did 15 transactions, five new partner, 10 mergers. Last year in total 25 transactions. So, yeah, clearly our unique value proposition just resonates and will continue to resonate. You have to be just very, very disciplined. As I said at the beginning, quite frankly, last year we called a little bit internally the year of the drunken sailors. Yes, we have seen very unusual transactions last year and we have some firms buying at double, triple, the type of multiple stay would be worse, I mean the acquirer would be worse. And, yeah, there's always a shareholder value destroying transactions. Yeah, we would never do this to our shareholders, our discipline speaks for itself. And because of this unique building block around ultimately the entrepreneur and the value-added programs, our unique approach to what successions and very important, the effect that we provide of permanent capital. We are the only public company in this space, at least of any scale and our ability to be a provider of permanent capital is very differentiated versus private equity, for example, where every transaction that happen -- here this thing is going to be on the block again in three years, five years or whenever. And in the second go around, the principles of these firms will have very little control of our -- who the peers are going to sell it too. So in reality, we are very confident in our track record and the quality of our pipeline just speaks for itself, that we will have -- almost unlimited opportunities here for years to come. Just one number to illustrate this, Siroli[Phonetic] came out with a report recently and they are basically you're pointing to in -- just in the U.S. and M&A opportunity in this of $2.8 trillion. Yeah, T -- trillion with a T, $2.8 trillion in the next five to 10 years. We mentioned before Focus today is $250 billion plus. So, just the sheer size -- and these are U.S. numbers is just extremely high. We are the largest in this space. We have the longest track record, not just of transactions but of value added. I think we are in a rock solid position and I'm very confident that '21 is going to be a very good year again. Are you still there? Hello?

Operator

Thank you. Our next question comes from Kyle Voigt with KBW. Please proceed with your question.

Kyle Voigt -- KBW -- Analyst

Hi, thanks for taking my question. Maybe just on the margins, calculating incremental EBITDA margin 2020, it's over 35%, which is obviously very strong. Is there a way you could help us understand how much of this is maybe due to any genes in the ownership percentage of the businesses you acquired during the year versus simply realizing scale benefits and operating leverage? And then secondly, I mean the second part of that question is, in a growing revenue environment, can you share a bit more about how you think about the balance of wanting to pay routine advisors versus driving the margin expansion for our shareholders?

James Shanahan -- Chief Financial Officer

Yeah, I think maybe I'll just I'll just start. So Kyle, we -- in the Q3, we had an earning supplement where we announced the acquired based earnings and the estimated revenue, and that was with four of the firms, we ended up closing five. So the five firms, new partner firms in Q4 were somewhere around 36%, 37% of margin there. Obviously SG&A cost as you have seen as relative to revenue have not been going up, so that's a positive on the margin. And then the $19 million of the one-time in Q4, probably had about a 26 margin -- percent impact to adjusted EBITDA margin. So that's a little color for you on the margins.

Ruediger Adolf -- Founder, Chief Executive Officer and Chairman

And Kyle, as we were seeing from a long-term perspective, we are not changing our 2025 guidance at this point, but clearly what we have learned in 2020, and what our partners have learned, is a more efficient approach toward running the business. Jim and I aren't yet clear or not with the precision that we like. Which of these are temporary because it's related to corona, and which of these are permanent? But we are -- very much we are going to look throughout this year, how do you expense base evolves, and yes, there is a potential that we will be revising the 24% upwards at one point once we have better clarity into the ongoing cost structure of the business.

Kyle Voigt -- KBW -- Analyst

And, maybe just a clarification question, and Jim, sorry if I missed this, but in terms of the 20% revenue target you provided for 2021, it sounds like you don't really need more help from markets from the current levels to reach that, but I guess I'm wondering if we need to see a return of this live events in the second half of the year. Are you assuming that those come back in order to hit that 20% target? Thanks.

James Shanahan -- Chief Financial Officer

Well, I think -- we hopefully are all optimistic that we all get vaccinated in the the first half of this year and activities will start to increase in the back half of the year. So we are not breaking out the guidance of the 20% between the market and the non-market. We did give some guidance on seasonality of that type of revenue into Q1, but we're comfortable with the guidance at this point of over 20% our revenue growth for 2021.

Kyle Voigt -- KBW -- Analyst

Okay, great. Thank you very much.

James Shanahan -- Chief Financial Officer

Welcome.

Operator

There are no further questions at this time. I would like to turn the floor back over to Rudy for closing remarks. Rudy?

Ruediger Adolf -- Founder, Chief Executive Officer and Chairman

Yes, thank you. So we are extremely proud of what our company accomplished in 2020 and how well our partners served their clients and manage their businesses during these challenging times. They have shown extraordinary dedication and perseverance. I also want to thank our holding company employees who went above and beyond in so many ways as they supported our business in a challenging environment. With the rollout of effective vaccines and stronger COVID treatments, we hope that the world will begin returning to normal later this year. We are looking with great optimism toward 2021 and beyond. Our ability to deliver substantial growth and margin expansion while deleveraging during the crisis combined with our tremendous capital flexibility and unique scale, position us to take advantage of our industry leading position to expand our model in the U.S. and in selected international markets. In closing, I wish you all good health and thank you for your interest in our business. Bye-bye.

Operator

[Operator Closing Remarks]

Duration: 58 minutes

Call participants:

J. Russell McGranahan -- General Counsel

Ruediger Adolf -- Founder, Chief Executive Officer and Chairman

James Shanahan -- Chief Financial Officer

Rajini Sundar Kodialam -- Co-Founder, Chief Operating Officer and Director

Craig Siegenthaler -- Credit Suisse -- Analyst

Mike Carrier -- Bank of America -- Analyst

Gerald E. O'Hara -- Jefferies & Company -- Analyst

Alexander Blostein -- Goldman Sachs Group -- Analyst

Chris Shutler -- William Blair & Company -- Analyst

Patrick O'Shaughnessy -- Raymond James -- Analyst

Kyle Voigt -- KBW -- Analyst

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