Mercer Advisors is finalizing a major investment from Toronto-based Altas Partners that should value the aggressive RIA acquirer at between $3 billion and $4 billion, the company announced today.
Mercer has acquired more than 75 firms since 2015 and now oversees about $48 billion in assets as April 30.
Altas will purchase equity from Genstar Capital and Oak Hill Capital, currently the two private equity owners of Denver-based Mercer, and employees. As it is currently envisioned, the three firms will each own roughly similar stakes that will combine for just more than 75% of the fast-growing consolidator, Mercer CEO Dave Welling said in an interview. More than 300 employees of Mercer will own the remaining shares.
Altas’s precise ownership percentage and dollar investment amount still need to be worked before the final deal terms are set. Most of the investment proceeds will be used to provide liquidity for existing investors.
Welling said the Altas recapitalization enables Genstar, Oak Hill and certain employees to sell some of their shares. It also will provide funds for Mercer to invest in technology, human capital and future acquisitions.
“We have had an outstanding partnership with Genstar and Oak Hill for many years and chose Altas as our newest strategic investor because they believe in our mission, purpose, and strategy and are committed to support continued investment in capabilities that will allow us to enhance the way we serve our clients,” he said.
For early investors including Genstar, the recap at above $3 billion will provide an opportunity to mark up their investment and cash in some big profits.
Genstar became involved with Mercer in 2015, when it had about $5 billion in assets. Welling joined in 2017 after running several advisor-based software businesses.
Oak Hill purchased an equal stake in 2019 when the firm had $15 billion. Welling said that investment “supported us during the pandemic,” when Mercer went on a blistering acquisition spree.
Adding a third equity partner broadens Mercer’s ownership base. “No one has a majority,” Welling said. This also means management has more shareholders to report to, but also more interested partners to suggest ideas.
After completing the recap, Welling said management hopes to reopen the window for employees to purchase shares later this year. In contrast to other RIA firms where employees must typically “make partner” to own equity, Mercer allows most of its 900 employees to be owners.
The recap indicates that private equity investors remain interested in RIA firms at a time when other aggregators like Focus Financial Partners are going private and others like CI Financial are delaying the initial public offering they once expected to do in 2024 or 2025. Welling isn’t ruling out an IPO at some future date but he says Mercer currently is committed to remaining a “fully independent, private firm.”
In a universe populated with numerous private equity investors and aggregators, Welling said that Mercer’s key differentiating characteristic is that it is structured as “an integrator, not an aggregator.” Many advisors struggle with technology, operations, sourcing new clients and enhancing their service platforms.
Welling himself brings a strong technology background to the firm, having run Black Diamond, and he held a senior management position at SSC/Advent. Furthermore, he added that Mercer has more than 50 professionals in both its tax planning and estate planning positions.