It was a deal for the ages. In the span of a month at the end of 2020, Mercer Global Advisors acquired seven RIAs with approximately $ 3.9 billion in combined assets under management, and revealed the fruits of its labor in the first weeks of 2020.
Mercer’s mergers and acquisitions director Dave Barton (pictured) attributes the wave of acquisitions to the structure of friendly agreements and internal capacity building.
“One of the reasons Mercer earns more than its share is that our transaction structure is quite seller friendly because we have a very short payoff, typically two years or less,” Barton said. “We have a number of agreements which are price supplements for one year. It is very rare in the industry. Most of the payoffs for other buyers are three, four, five years.
Regarding the makeup of transactions, Barton said the company has learned that for many sellers “cash is king.” He reports that Mercer’s deal structures have tended to be 100% cash, giving the company a head start as it targets deals with mid-sized advisers with several hundred million dollars in assets. .
“Companies this size, sellers, founding shareholders are looking more for an exit than a long-term sponsorship by the new buyer,” Barton said. “They want their money to fund their retirement, and that makes sense.”
Mercer, which manages about $ 27 billion and added about $ 6.2 billion in client assets under management through an acquisition in 2020, has seen its average AUM of an acquired business crawl north of $ 500 million l last year, which Barton said was a record for Denver. based company.
Oak Hill Capital and Mercer, backed by Genstar Capital, closed seven deals between late November and late December 2020, most recently revealing its $ 215 million purchase of Marrs Capital Management in Ames, Iowa on Monday.
Although sellers in an occasional Mercer deal take stakes in the business, Barton said Mercer’s propensity to put money in the hands of sales consultants – and quickly – has resonated. with the current market of mergers and acquisitions.
One question regarding Mercer’s sequence of transactions is its ability for additional acquisitions, especially as advisors who sell their practices to Mercer transfer their client assets to Mercer’s Form ADV and use the centralized suite of services. company. Barton estimates that post-acquisition integration for a business can take as little as two quarters or as long as a year.
Vast capacity concerns have started to arise recently. In a January report, valuation consulting firm DeVoe & Company wrote: “Over the past few months, acquirers have been operating at full capacity; their M&A leaders worked tirelessly. The strain prompts them to be more selective and even to steer away from certain opportunities.
But the solution seems to be simple: just add more people to the team.
Barton told Citywire that Mercer is proactively hiring additional staff in its integration department, which he says will allow the company to secure larger contracts in 2021.
By forecasting business flows and hiring ahead of time, the company stays “ahead of the game, never behind,” Barton said.