Merchant strikes growth partnership with boutique valuation shop WRV

Merchant Investment Management, the New York-based private partnership that provides capital and other support services to independent financial services firms, has struck a new partnership to give RIAs and the business owners they work with access to comprehensive valuation services.

Under the new collaboration, Merchant has agreed to be a strategic growth partner to WR Valuation, a specialist 12-person team that offers a host of services including financial reporting, corporate finance transactions, succession planning, portfolio and fund valuations, and more.

Currently supporting 37 diverse public companies – including well-known names like Steve Madden and Scotts Miracle-Gro – WRV's experienced team uses a rigorous approach to company and business valuation.

Objective, independent services

This isn't exactly Merchant's first engagement with the world of valuation services. Last September, it took a minority stake in Republic Capital Group, an investment bank that provides buy-and-sell-side M&A advisory services to wealth firms. In February, Fin.Link, which is also within Merchant's network, announced a strategic partnership with Republic to give advisors using its M&A and succession platform access to more comprehensive valuation insights.

But Tim Bello, co-founder and managing partner at Merchant, sees its new relationship with WRV as "an expansion of the vision we had and we invested in with Republic Capital Group," particularly for independent RIAs working with small- to mid-size entrepreneurs.

"The client business owner today, for the most part, does not have access to objective and independent valuation services," Bello told InvestmentNews. "Typically, they would go to investment banks attached to larger institutions with their own wealth management businesses, which can then compete [with RIAs] for the liquidity created by the sale of their client's business."

Previously a unit within Citizens Financial, WR Valuation has been operating on its own for the past 16 months. During that time, senior managing partner Robert Stutz says it received invitations to partner from multiple suitors, but he saw "an amazing fit" within Merchant's network of RIAs.

"The opportunities to be part of their ecosystem and sell our services to help the clients of all their RIAs really, really got our attention, especially mine," he said.

Beyond WRV's pedigreee and expertise, Bello also stressed the importance of "[underwriting] the character" and "finding people with the right energy to grow and add value."

"Historically, Republic has helped financial advisors understand the value of their businesses. They've started to evolve into offering those services to the business owner clients of the RIAs. How do you make Republic even better at what they're good at? You bring more resources," he says. "We're unobjective, but we think WRV is the best investment bank in the industry at what it does."

A rapidly growing opportunity

Among WRV's services, Stutz highlighted its expertise in employee stock ownership plans (ESOPs), which he says are a fast-growing area for the RIA space.

"A lot of RIAs look at ESOP transactions because it helps [solve liquidity challenges] for difficult companies," he says. "Maybe they've got some type of customer concentration, or they're businesses with specialties like engineering or key man type companies that need to be liquidated or sold at some point."

WRV's deep valuation expertise can also come into play for business owners' insurance planning. Many RIAs' business owner clients don't have a grasp of what their privately held company is worth, so appraising those enterprises can fix a critical blind spot in protecting their wealth.

"Helping them understand what their insurance needs may be, for the companies that they hold ... we can help with that," Stutz says. "There's just so many uses for valuation in the RIA world." 

The partnership with Merchant will also let WRV connect with other providers of trust services, strategic consulting, and succession solutions, which can help it better serve independent advisors and business owners.

Looking across the industry, Bello says the dynamics of consolidation have transformed significantly over the years. From providing infrastructure to support growth- and succession-focused independents, he's seen more minority investors, private equity firms, and other entities providing capital to support both organic and inorganic expansion strategies.

"Over the last 15 years that I've been watching this lane of the market, people have wrongfully approached the RIA marketplace as if it's small, it's budding. They didn't give it the respect it needs" he says. "Now this is a multi-trillion dollar marketplace ... It's at a point where the Wells Fargos and the Goldman Sachs of the world have accepted this is no longer a fad, and they're participating in it through partnerships or having their own custodial offerings."

And while Merchant continues to evolve from a minority equity investor to a full lifecycle and growth partner to RIAs – since June, it's added Rich Policastro from Hightower Advisors and Candice Carlton from Ficomm as managing directors – Bello sees a similar need for small- to mid-size business owners to have a trusted valuation service provider as they grow.

"I think we're on the brink of seeing what people may think of as small companies become massive businesses," he says. "Someone with a $50 million business can say they want to take it to a quarter billion dollars in five years. WRV can help them understand where they are today. When they're actually ready to sell, they'll come back ... It's a whole lifecycle experience."