Barclays analysts have said the £585m price paid by Old Mutual for discretionary firm Quilter Cheviot “seems high” in comparison with peers, but they remain “slightly positive” on the deal as it brings capabilities which will complement the firm’s blossoming vertically integrated model.
The acquisition seems slightly positive on an earnings basis, an analyst note from the bank says, but not sufficient to change the investment case for the listed life, pensions and investment giant overall.
Last week, Old Mutual acquired discretionary firm Quilter Cheviot for a consideration of up to £585m, with the firm to form part of its Old Mutual Wealth business.
The company stated the acquisition of Quilter Cheviot, which currently has 38,000 clients and funds under management of £16.2bn, would add a strong discretionary investment management capability, as well as “accelerating” Old Mutual Wealth’s business strategy.
Old Mutual Wealth currently has investment management capabilities, but does not offer discretionary investment management.
According to Barclays, the price paid will probably prove “reasonable” when considering future earnings, but implies a price to funds under management ratio of 3.6 per cent which is significantly higher than listed peers.
According to the bank:
• Rathbone Brothers, which has a last reported assets under management of £26.3bn, has a price to AUM ratio of 3.3 per cent;
• Investec W&I have AUM of £45.2bn and a ratio of 2.6 per cent;
• Brewin Dolphin have AUM of £29.3bn and a ratio of 2.3 per cent;
• Charles Stanley (managed funds only) have £11.8bn of AUM and a 1.2 per cent ratio; and
• Charles Stanley have £20.5bn of AUM and a ratio of 0.7 per cent.
Of course, the price disparity could have been worse: according to rumours circulating in some press reports in the weeks leading up to confirmation of the deal, price tags of £650m upwards were under discussion.
The addition of Quilter’s funds under management will increase Old Mutual Wealth’s funds under management at the end of the first half of 2014 by about 20 per cent to £92bn.
Quilter’s profitability metrics compare well to peers, according to Barclays analysts, with the second highest new inflows per investment manager, and the highest operating profit margins in its peer group.
