River Wealth Advisors, a $1 billion Harrisburg, Pennsylvania-based registered investment adviser, sold a minority ownership stake to Merchant Investment Management, an equity capital investor.
The capital infusion will be applied toward a long-term growth strategy and help with the firm's business continuity plan. That enabled co-founder Robert Caplan to transition from chief executive to senior wealth adviser, with a commitment to stay on board for another five years.
“We’ve been working hard to make sure our clients understand what this opportunity presents to them, and continuity is a big piece of it,” said Edward O’Gorman, who took over as chief executive in the leadership transition.
“As we grow, we have an eye toward bringing on a next generation of advisers, but a lot of this is also about internal succession,” he said.
While the infusion of private capital, which has become increasingly common across wealth management, is typically viewed as a sign of acquisitions to come, that's not necessarily the case for River Wealth, which has not made any acquisitions to date even though there have been discussions, O’Gorman said.
“Inorganic growth is something that comes to the table when you have a partner like Merchant,” he said. “These guys understand our business, and they are a source of capital.”
Merchant, which made its first investment in 2017, currently has minority stakes in 47 businesses that collectively amount to nearly $110 billion.
Tim Bello, Merchant managing partner, makes a point of distinguishing Merchant’s investing model from that of a more traditional private equity investment fund that combines capital from outside investors and typically has an investment time horizon of between five and seven years.
“I like to think of it as 15- to-20-year money, at least that long,” Bello said. “No one from Merchant is going to call and say, ‘Five years of great growth has gone by and we need our money back.’”
Bello said that as a minority equity capital partner, “we have no ability to force their exit or call our money back.”
In its five-year history, Merchant has yet to sell out of an investment, but Bello doesn’t rule out the possibility of that happening.
“We haven’t liquidated out of anything yet, but there could be one or two of those coming,” he said. “We don’t want to be in position to hold back anyone from what they want to do.”
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