Investec Group plans to merge its UK-based Investec Wealth & Investment UK with UK-listed Rathbones Group in an all share deal valued at £839 million (R18.9 billion) to create the UK’s leading discretionary wealth manager.
Investec will be a minority shareholder in the enlarged Rathbones entity, with 41.25% stake and 29.9% voting rights, Investec said in a statement yesterday.
Deal Leaders International chief executive Andrew Bahlmann said mergers and acquisitions such as between Rathbones buying Investec UK wealth unit have been a strong feature of the wealth management market for at least a decade.
Drivers of this were the baby boomer generation slowly coming to the end of cycle, with many of them in their 80s and those of the many that acquired wealth were looking to pass that wealth on to the next generation, while the wave of consolidation among wealth managers and financial advisory firms was for one of the greatest wealth transfers of all time.
“The great wealth transfer is well under way… a significant portion of all global wealth is expected to change hands in the next decade or two. The scale required to manage such vast sums demands improved efficiency, through technology, talent acquisition, and also mergers and acquisitions,” he said.
Wealth management companies were acquiring from target companies not only assets under investment and clients, but also the target’s team, most of whom already had a strong relationship with the client base. This allowed new owners to short-cut the time and cost of training up new professionals.
“We see this as an ambitious, but logical step for Rathbones to help secure its position as one of the leading franchises in UK wealth management,” analysts at RBC said, according to a Reuters report.
On the JSE, the deal appeared to be positively received, with Investec Limited’s share price rising 3.87% to R101.96, while the SA Banks Index was up only 1.19%.
Investec said in a statement the deal would bring together well-known UK wealth management businesses with closely aligned cultures and operating models. The transaction was expected to conclude in the final quarter of this year.
The enlarged Rathbones would have about £100 billion in funds under management and administration, which was expected to deliver the scale to underpin future growth.
The transaction would also establish a long-term, strategic partnership between the Rathbones and Investec, and would enhance the client propositions for both groups.
Rathbones will issue new Rathbones shares in exchange for 100% of Investec W&I UK’s share capital. Rathbones would remain an independent premium-listed company operating under its own brand, with Investec as a long-term shareholder.
The terms of the transaction imply an equity value of about £839m for Investec W&I UK. The transaction was subject to Rathbones shareholder and regulatory approval.
The deal includes Investec’s wealth and investment businesses in the UK and Channel Islands, but excludes Investec Bank (Switzerland) AG (“IBSAG”) and Investec Wealth & Investment International (Investec W&I SA). Both IBSAG and Investec W&I SA will remain wholly-owned subsidiaries of Investec.
Annual cash synergies of at least £60m would be targeted, driven mainly by cost savings and higher net interest income.
Investec Group CEO Fani Titi said: “The combination of Investec W&I UK and Rathbones brings together two businesses that have a long-standing heritage in UK wealth management and closely aligned cultures...(it) underscores our commitment to the UK wealth management market and enhances our UK business as a whole.”
Rathbones chairman Clive Bannister said in a statement the transaction also accelerated Rathbones’ growth strategy.
The transaction was expected to marginally lift adjusted earnings in the first full financial year, and increase earnings in the years thereafter. There would be no change to Investec’s dividend policy.
The client proposition across investment management, financial planning, fund management and banking services was expected to be enhanced, while multi-channel distribution capability across private clients, intermediaries and charities would be created through an expanded network across 23 locations in the UK and Channel Islands.
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