Rathbone Bros confirms merger talks with Smith & Williamson
Investment manager Rathbone Brothers confirmed on Monday that it was in exclusive merger talks with financial services provider and corporate adviser Smith & Williamson, as the wave of consolidation continues in the wealth management sector.
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It was reported over the weekend by Sky News that the pair were in talks over a £2bn combination that would bring together Rathbones' £37bn of assets under management with Smith & Williamson's £19bn.
Rathbone, the FTSE 250-listed wealth manager, said the discussions "have been underway for some time and the boards of both Rathbones and Smith & Williamson are confident that the combination would bring meaningful benefits for the stakeholders of both businesses", though stressed that there was no certainty any transaction will be agreed.
The reported price is £600m, to be paid via an all equity deal in new Rathbones’ shares, meaning S&W shareholders would own around 30% of the enlarged entity.
However, if a deal is agreed, it will be subject to the approval of shareholders, with Smith & Williamson mostly owned by its current and former staff, with a 29% stake owned by Canada's AGF.
With its shares already at all-time highs, Rathbones was little moved on Monday, rising 0.5% to 2,790p.
A price of £600m would be roughly 20.5 times historic post-tax profit and equates to a post-tax return on invested capital of 4.9%, noted analyst Paul McGinnis at Shore Capital, calculating that any deal synergies would need to approximately double S&W’s current level of profitability for the deal to be value creative.
"There is an overlap in regional offices, offering some cost savings, but we would expect minimal headcount reduction from front office staff," he said, noting that cost savings just from back office "would therefore potentially need to be quite significant".
McGinnis felt adding S&W’s financial planning and accounting/tax expertise as well as its investment/fund management "would make strategic sense for Rathbones, recalling that chief Philip Howell had previously predicted "convergence" in the advice, financial planning and investment management services, as different parts of the wealth management chain fight for what is likely to be a reducing overall annual charge.