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Get ready for the next RIA M&A blockbuster with a $700M-plus price tag

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The timing appears to be right for the next blockbuster RIA M&A deal, which may carry a $700 million-plus price tag.

That’s the reaction of industry executives to a report that Mercer Advisors, one of the preeminent RIA consolidators with around $16 billion in AUM, has been put up for sale by owner private equity firm Genstar Capital.

“Genstar likely realizes we are top of the cycle and this is a great time to seek an exit,” says Steve Levitt, managing of investment banking firm Park Sutton Advisors. “Otherwise they could have to wait, say, five years for the next frothy period given market and business cycles.”
News of the potential Mercer sale was first reported by Buyouts Insider. Genstar, which also owns the giant IBD network Cetera Financial Group, did not comment on the report, but knowledgeable industry executives confirmed with Financial Planning that bids were being solicited for Mercer.

“Mercer has built a best-in-class wealth management firm,” says Karl Heckenberg, CEO of Fiduciary Network, another leading strategic RIA acquirer. “Given the timing of the United Capital sale ... It makes sense that Genstar feels like this is a good time to be a net seller.”

For good reason: the biggest deal of the second quarter was Goldman Sachs’ purchase of United Capital for $750 million in cash, at a multiple estimated to be around 18 times EBITDA.

What’s more, the torrid RIA M&A market is on pace to exceed 200 deals and hit an all-time high by year’s end, according to Echelon Partners latest RIA M&A Deal Report.

According to Buyouts, Mercer’s current pro-forma, run-rate earnings before interest, taxes, depreciation and amortization is approximately $50 million, and Genstar is looking for an EBITDA multiple of 15 to 16, which would result in a sales price of around $750 million.

That multiple range is “realistic in this market,” according to Levitt. A multiple in the mid teens wouldn’t be surprising, Heckenberg says. But, he adds, “I think the smarter, more-experienced sponsors will stay in the low double digits.”

Led by executives Dave Barton and Dave Welling, Mercer has been one of the industry’s dominant M&A players for the past few years. Mercer was the industry’s second most active RIA acquirer in 2018, buying eight firms.

Mercer has already acquired four firms this year, the fourth most in the industry, trailing Focus Financial Partners, Mariner Wealth Advisors and Captrust Financial Advisors.

Focus’ successful IPO last year, which saw the RIA raise $535 million and trade at multiple of 16 times EBITDA is considered — along with Goldman’s purchase of United — a shining example of the rich valuations independent advisory firms can now command.

Genstar has hired Goldman Sachs to advise on the Mercer sale, according to Buyouts. While Genstar owns a majority of Mercer’s shares, the RIA’s previous primary owner, private equity firm Lovell Minnick, still has a small stake in the firm.

Yet another PE owner is possible, Heckenberg says.

“A natural buyer in my mind would be another financial sponsor that could take Mercer public in a few years,” says the Fiduciary Network CEO. “A number of PE firms still haven’t made a platform investment in the RIA space.”

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