Mercer Advisors, a rapidly growing “integrator” of registered investment advisors with $48 billion in client assets as of the end of April, is bringing on a third private equity investor. The firm has signed an agreement with Toronto- and New York–based Altas Partners, in a deal that’s expected to raise over $1 billion in common equity and bring Mercer’s valuation to north of $3 billion, CEO Dave Welling said in an interview with WealthManagement.com.
As part of the recapitalization, two other private equity investors, Genstar Capital, which first invested in Mercer in 2015, and Oak Hill Partners, which bought into the firm in 2019, will still own stakes in the RIA. While terms of the deal were not disclosed, Welling said the three private firms will each have roughly equal ownership positions. The Altas transaction is expected to close by the third quarter of 2023.
Mercer's employees also hold a substantial portion of the company. The firm boasts over 900 employees, and about one-third of its workforce owns a piece of the business.
“We look at that collective group really of four parties, three strategic investors and then the employee owners, as our partnership, so this is an expansion of our partnership by adding Altas to the mix,” Welling said. “And the advantages of this for us as a business and for the team and for our clients is it gives us a broad base of access to capital.”
Altas will buy shares of Mercer’s common equity from a combination of Oak Hill, Genstar and employee shareholders.
The capital will be used to provide some liquidity to its other investors, including employee owners and the other two private equity funds.
“For us, it's both raising capital, but also aligning interests of the investors in the business to ensure that we have long-term capital focused on the long term," Welling said. "It's very helpful when you navigate difficult choppy market environments or markets of uncertainties, you're able to keep investing in the business because you have that long-term horizon. We're at $50 billion today; we were at about $8 billion when I joined in 2017; but we're by no means done.”
The capital that isn’t going toward providing liquidity will be reinvested back in the business, with client services being the first priority, followed by organic growth and then M&A, he added.
“I think a lot of other RIA platforms think of it the other way around: They do M&A first and try and figure out the strategy and integration later, and we don't operate that way,” Welling said. “That's why we call ourselves an ‘integrator,’ not an ‘aggregator,’ and so we expect to invest significantly in our client experience.”
For instance, the firm plans to expand its estate planning, tax and investment offerings.
Mercer has grown rapidly over the past several years through M&A activity, and Welling said the firm will continue to pursue that route, although a significant number of its deals are funded through cash from operations. The firm has completed 75 acquisitions since 2016, including 18 in 2022 and two so far this year. The rising interest rate environment and economic climate has slowed Mercer's acquisitions pace, and sellers have also been less aggressive. But the firm has remained very active in conversations with potential sellers, and he expects more deal volume in the second half of the year. In fact, the firm has agreements with more than five RIA firms that it expects to close in the coming months.
While private equity often gets a bad name in the wealth management industry, Welling said it has brought a growth bias and long-term focus to Mercer. For example, one common critique is that private equity investors have short time horizons. But Genstar, by contrast, has been invested in Mercer for eight years.
“I think that's probably where the narrative on private equity is the most off, where they are medium term, at least investors,” Welling said. “The ones we have are long-term investors as evidenced by how long our private equity partners have stayed involved in the business, and that long-term focus and growth focus allows you to continue to make investments in the business even during tough times. And as a guy who's been around this industry for 25 years, there's a lot of great advisory firms out there that provide great service to clients, but they've stopped investing in the business; they've stopped trying to add new clients.”
Since Oak Hill made its investment in the fourth quarter 2019, Mercer has grown its client assets by 38%, and its revenue and profit growth have been equivalent during that period.
Earlier this year, Mercer announced it was rebranding the firm to reflect its evolution since 2017, when its previous branding was developed. Many would say the firm now has national reach, with over 80 offices and close to 30,000 clients.
The new branding reflects that identity as a national RIA as well as the firm’s comprehensive and integrated approach to wealth management, an offering that now encompasses financial planning, investment management, tax planning and filing, estate planning, trusts and insurance services. The firm has taken both a build and a buy approach to rounding out those services.
In February, WealthManagement.com reported that Mercer launched its own broker/dealer, seeded by one of its acquisitions. The firm said the move will help it better serve prospective clients and M&A prospects that have legacy, or long-standing, commission-based assets.