Wealth manager Rathbone Brothers (RAT) is in talks with rival Smith & Williamson over a £2bn merger.
This is further evidence of consolidation in the financial services industry following the acquisition of investment manager Hargreave Hale by financial services group Canaccord Genuity announced last month.
On a bigger scale, the combination of Standard Life and Aberdeen Asset Management went live on the market last week in the form of Standard Life Aberdeen (SLA).
The combination of Rathbones and Smith & Williamson would create an entity with £56bn in assets under management (AUM).
WHO IS SMITH & WILLIAMSON?
The unlisted Smith & Williamson employs around 1,700 people and describes itself as a ‘leading independently-owned, financial and professional services group’ which looks after individuals, families and businesses.
Investors have reacted positively to the news with Rathbones shares up 2.1% to £28.27. The FTSE 250 company, which can trace its roots back to the 18th century, confirmed it is in talks following media speculation over the weekend.
‘Whilst these 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,’ says Rathbones in a statement, adding that there can be ‘no certainty any transaction will be agreed’.
RATHBONES’ ACQUISITION HISTORY
This is not the first time Rathbones has been on the acquisition trail. In 2014 it bought Jupiter Asset Management’s private client and charity management business and the London arm of Tilney Asset Management for a total of £57.4m. This added £2.8bn of AUM to Rathbones, which used a share placing to fund the acquisitions.
The deal with Smith & Williamson would be structured as a takeover and value the target at around £600m.
According to Keith Baird, analyst at Cantor Fitzgerald, ‘the cultural fit looks to be good with both overlap in activities such as private client wealth management plus complementarities’.
HOW MUCH MONEY DO THE TWO COMPANIES MAKE?
Rathbones’ results for the first six months to 30 June show the company is doing well. Its underlying pre-tax profit was up 22.7% to £43.3m.
The half year dividend was hiked to 22p from 21p the year before and its earnings per share grew by 16.5% to 41.6p.
Smith & Wiliamson’s full year results to 30 April 2017 also imply its business is healthy. Adjusted operating profit grew 12.8% to £40.6m, with a 16% increase to its adjusted earnings per share of 60.2p on a year on year basis.
