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Analysts predict Rathbones tie-up will spur on mergers

Analysts predict Rathbones tie-up will spur on mergers

The likely merger of Rathbones and Smith and Williamson will lead the already buoyant fund manager consolidation market to hot up even further, according to analysts. 

Rathbones, the FTSE 250-listed wealth manager, announced to the stock market on Monday morning (21 August) that it is in negotiations with the smaller firm of Smith and Williamson about a merger, paid for with Rathbones shares.

That proposed tie up follows in the wake of the recent merger of Aberdeen and Standard Life, and that of Henderson Global Investors with US fund manager Janus.

Ryan Hughes, head of fund selection at AJ Bell, the online investment platform and stockbroker,  said the wave of mergers in the sector is the consequence of increased pressure on the margins fund houses can achieved as passive investment products gain market share, while regulation adds extra cost.

He said: “The news of a potential merger between Rathbones and Smith and Williamson is the latest evidence that we are in a period of consolidation in the asset management industry.

"Both of these business have remained at the periphery of the large asset managers and struggled to gain major traction, with many of their strategies remaining sub-scale.

“With markets at elevated levels and passive managers such as BlackRock and Vanguard taking ever greater market share, there are likely to be further opportunities for mid-tier asset managers to come together, find synergies to cut costs and look to regain the impetus for active management.”

Andrew Watson, an analyst at N+1 Singer commented that at the proposed valuation, considerable cost savings will need to be achieved for the merger to add value for Rathbone shareholders.

Mr Hughes is more optimistic on the potential for Rathbones shareholders to benefit from any completed merger with Smith and Williamson.

He said: “While there may be wider benefits from these two businesses coming together given that they do much more than just asset management, the ability to build greater scale has to be seen as a key opportunity as active managers look to take the fight back to the passive giants.

“A look at the fund ranges of both businesses actually reveals little overlap, highlighting the point that neither can be considered mainstream in their fund management line-up.

"That said, there is scope for potential consolidation in some areas of fixed interest and UK equities.

"It is worth noting that Rathbones contains the standout talent in Carl Stick, manager of the Rathbone Income fund and James Thomson, manager of Rathbone Global Opportunities, who has a fantastic long-term track record.”

David.Thorpe@ft.com