Genstar expected to sell Mercer Advisors soon

Wealth management has emerged as one of the hottest sectors in private equity, and the next big deal that’s likely to attract interest is Mercer Advisors, five sources said.

The Denver company isn’t up for sale right now but is expected to go on the block this year, sources said.

The deal represents a four-year hold for Genstar Capital. The San Francisco PE firm completed its buy of Mercer in May 2015. Lovell Minnick Partners, the seller, still owns a stake.

How much Genstar invested is unclear. The investment came from Genstar Fund VI, which closed on $912 million in 2012.

“Mercer is next,” a banker, one of the five sources, said. Genstar “is getting geared up because that’s the big exit.”

When it does go up for sale, Mercer is expected to sell for more than United Capital Financial Partners. Mercer is more profitable than the Newport Beach, California, RIA, a second person, one of the five, said.

Last week, Goldman Sachs Group agreed to buy United Capital for $750 million. The company sold for a high multiple, around 17x to 18x Ebitda, a different source said.

While it may produce higher profits, Mercer has “less of a distinctive model,” a third of the five sources said.

PE firms including Reverence Capital Partners, Warburg Pincus, Lovell Minnick, Parthenon Capital, Lightyear Capital and Warburg Pincus have all invested in the space.

Founded in 1985, Mercer Advisors is a wealth-management firm that provides fee-only investment management, financial planning, family office services, retirement benefits and distribution planning.

Mercer Advisors is the parent of Mercer Global Advisors, an RIA with more than $15 billion in client assets. It employs more than 350.

Mercer is expected to be the latest wealth manager to sell for a high price. Unlike public asset managers, wealth managers are considered more defensive because their business is built on relationships, one banker said. “They’re stickier,” the banker said.

Many of the wealth-management platforms are also rollups. “Private equity is perfectly suited to funding that,” the banking source said.

So far this year, Mercer has acquired three firms: Confluence, Arbor Asset Management and Dragon Financial Group. In 2018, Mercer completed at least seven add-ons, including buys of GFS, Beacon Wealth Management and Sigma Investment Management.

In the past 12 months, the sector has seen several large deals. Reverence Capital earlier in May agreed to buy 75 percent of Advisor Group. Lightyear Capital and PSP Investments, the sellers, will own 25 percent. The deal was valued at more than $2 billion, Buyouts reported.

Warburg Pincus won the auction for Kestra Financial in February. Stone Point Capital was the seller. Kestra, an independent broker-dealer with about 1,800 registered representatives, was valued at $830 million to $850 million, Buyouts said.

Genstar Capital in 2018 also won the auction of Cetera Financial Group, a financial advisory network that was up for sale. That deal was valued at $1.7 billion, Buyouts reported.

“There is lots of heightened interest in the space,” the first source said.

Genstar and Mercer could not be reached for comment.

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