Welcome to Financial Advisor IQ

$8 Billion Mercer-Kanaly Merger Works on Several Levels

By Thomas Coyle March 30, 2016

Among other things, the planned merger of Mercer Advisors and Kanaly Trust highlights the growing importance of finding bridges to next-generation ownership for firms in the wealth management business.

“Drew Kanaly assures us he’s not going anywhere, but that’s a fair point,” Dave Barton, head of Mercer Advisors, says of his opposite number at Kanaly Trust. “We already have a footprint in Houston” – where Kanaly Trust is based – “and having a succession framework in place is essential for the multigenerational planning they do.”

That Mercer Advisors was already on the ground on Kanaly Trust’s home turf is significant in terms of succession planning to wealth industry M&A expert Dan Seivert. In his view clients in the private banking and trust space have to be eased into such transitions over years “by people who move in the same circles, even if initially it’s at a lower level.”

In truth though, there can be as many good reasons for a wealth management merger as a hydra has heads.

Subject to regulatory approval and an unspecified timeline, the merger will combine Kanaly Trust, which has about $2 billion under management, and Santa Barbara, Calif.-based Mercer, which manages about $6 billion from 19 offices throughout the U.S.

Kanaly Trust belongs to the private equity firm Lovell Minnick Partners – and until about a year ago Lovell Minnick also owned Mercer Advisors. In March 2015, however, Lovell Minnick sold Mercer Advisors to Genstar Capital, its present owner.

As many reasons for a merger as a Hydra has heads. (Getty)

Overlapping equity ownership is significant to this deal on at least one level.

“Kanaly was a sister company when we were in Lovell Minnick’s portfolio,” says Barton. Given Mercer Advisors’ broad geographic distribution and Kanaly Trust’s experience working with multigenerational families with complex needs, Barton “suggested to Lovell Minnick that with Kanaly we could build out a national family office model that was scalable for families with $1.5 million and households with $25 million in investable assets.”

Adds Barton: “With Kanaly Trust we can cast a wide net.”

Seivert, who runs the investment bank and M&A consultancy Echelon Partners, sees another reason for Genstar to add an investment distributor to its portfolio.

Seivert says third-party investment providers are struggling as the number of broker-dealers it counts on for distribution declines, as more BDs build their own investment platforms and rival turnkey program builder Envestnet, a giant in the space, applies pricing pressure.

Genstar owns investment provider Assetmark.

Adding investment distributors – as Genstar did a year ago when it bought Mercer Advisors from Lovell Minnick, and now as it gets set to buy Kanaly Trust from the same seller – could give Assetmark chances to add customers through sister companies.

But that’s a view Mercer Advisors’ Barton rejects.

“It’s not a distribution play,” he says of his firm’s impending tie-in with Kanaly Trust. “It’s not being done with a view to Assetmark at all.”

Lovell Minnick wasn’t available for additional comment on distribution factors before deadline.

In a press release, Genstar’s Anthony Salewski describes the merger as a “transformative partnership” and says his firm plans to stay invested in Mercer Advisors “as it continues to build its presence in the wealth management sector.”

For David DeVoe, a former M&A analyst at Schwab who now runs his own deal making and research shop, the proposed merger between Mercer Advisors and Kanaly Trust is a continuation of a spate of “mega” indie-advice-shop deals begun last year.

Among these transactions are City National’s sale of Convergent and other wealth businesses to the Royal Bank of Canada ($33 billion in assets), Edelman Financial’s sale to equity firm Hellman & Friedman ($14.4 billion), and MyCIO’s move to AMG Wealth Partners ($7 billion).