Hands holding the EU flag
The combined entity would be the largest trust in the European Smaller Companies sector / Image source: Adobe
  • Creates largest European Smaller Companies trust
  • Lower costs for shareholders
  • Focus on ‘dynamic’ European small and medium-sized firms

The consolidation wave continues to break across the investment trust sector, with the struggling European Assets (EAT) and the stronger-performing European Smaller Companies (ESCT) the latest names to propose a merger.

Wide discounts to NAV (net asset value) and increased pressure on sub-scale trusts is driving M&A and this is the second deal seen in the broader European sector within a week, following the announcement of a merger between Henderson European Trust (HET) and Fidelity European Trust (FEV).

STRONGER TOGETHER

Whereas the Janus Henderson Investors’-managed European Smaller Companies has generated long-term outperformance over its benchmark, the Columbia Threadneedle-steered European Assets’ performance issues prompted the board to consider ‘all opportunities to deliver improved performance for shareholders’ including this rollover into the trust’s larger rival.

Based on net asset values as at 30 May 2025, the combined entity would have net assets of approximately £780 million, making it the largest trust in the Association of Investment Companies’ (AIC) European Smaller Companies sector, with its greater scale set to improve the market liquidity for both sets of shareholders.

The enlarged vehicle will continue to be managed by Janus Henderson Investors’ Ollie Beckett and his team.

European Assets’ shareholders should benefit from an immediate uplift given the relative ratings of the two companies, with European Smaller Companies currently trading on a discount of 7.3% and European Assets languishing on a wider 10.2% discount.

LOWER COST VEHICLE

Stuart Paterson, chairman of European Assets, said the board have considered ‘a variety of options in order to address the performance issues of EAT and believes the proposed combination of EAT with ESCT will provide shareholders with access to a larger, more liquid, lower cost vehicle with a strong long term performance track record.’

Fidelity European and Henderson European combine as consolidation wave continues

Paterson added: ‘The strategy remains focussed on the attractive European Smaller Companies sector and ESCT’s new dividend policy is intended to provide EAT shareholders with an attractive yield. We have consulted a number of our largest shareholders who have indicated their support and we believe the combination is very attractive for shareholders as a whole.’

WHAT THE ANALYSTS ARE SAYING

Winterflood’s Emma Bird sees this transaction as positive for both sets of shareholders and views it as best practice that EAT shareholders are being offered a cash exit.

‘ESCT shareholders will benefit from a reduced management fee, increased scale and liquidity, and the introduction of an enhanced dividend policy,’ said Bird.

‘While we recognise that some shareholders do not like dividends being paid out of capital reserves for various reasons, we expect the policy to be particularly welcomed by retail investors, which make up a significant portion of the share register.’

Bird stressed that the benefit of increased scale is ‘especially important following the recent 42% tender completed in response to Saba’s large shareholding and requisitions, and we consider this transaction to be an opportunity for ESCT to ‘relaunch’ as the largest, best performing investment trust in the European Smaller Companies peer group.’

Quoteddata’s Matthew Read believes the deal makes a great deal of sense ‘on multiple levels. EAT has been under pressure for some time, with persistent underperformance and high charges making it difficult to justify its standalone status.’

Read added: ‘A combination with ESCT brings EAT shareholders exposure to a better-performing portfolio with a more competitive cost structure and improved liquidity. Assuming the discount of the combined vehicle continues to reflect that of ESCT’s which seems likely given the continuing commitment to maintain the discount in single figures, the uplift in value from the discount narrowing for current EAT shareholders will be welcome.’

Find out how to deal online from £1.50 in a SIPP, ISA or Dealing account. AJ Bell logo

Issue Date: 23 Jun 2025