InvestmentsSep 5 2019

Why the merger of Premier and Miton is happening

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Why the merger of Premier and Miton is happening

Distribution was the driving factor behind the merger of mid-tier UK fund management companies Premier and Miton.

The merger, which was announced yesterday, will see the combined company reach assets under management of £11.5bn.

Mark Harper, head of marketing at Miton Group, said the merger offered an opportunity for "the benefits of greater scale to take place, and for more investment in areas such as distribution".

He said Miton had focused its sales efforts on larger, London-based, fund buyers while Premier had focused on distributing products to financial advisers across the UK where Miton is less strong.

This, he said, would give the combined company plenty of opportunities to grow.

Mr Harper said: "Both companies are profitable on their own and could have continued to grow as separate businesses, but what this does is speed up that growth.

"I think some other asset management mergers have been driven solely by a desire to achieve cost savings, but because there is very little overlap between the product ranges of both companies, this is about more than that, the cultures of the two businesses are aligned and can benefit from greater scale."

Premier chief executive Mike O'Shea, who will lead the new company, said the merger will allow for more cross selling of the companies' products to each others' clients.

He said: "Miton’s distribution team is very good and has focused on the wealth managers and big fund buyers. Premier’s sales team is very good, and complements Miton’s very well. The aim will be to cross sell to each others' clients. There will also be scope to invest more in technology and into recruiting and retaining fund managers."

The approach to recruiting managers will be "bottom up", driven by the availability of suitable managers rather than launching a fund in a certain area and then finding a manager for it.

Miton is an Alternative Investment Market listed fund house with a market cap of £71m before the deal was announced, though Premier’s offer values the business at 38 per cent higher than that, according to Nik Lysiuk, an analyst at FinnCap. 

Premier, which is also listed on the Aim, had a market cap of £182m before the deal was announced. 

Mr Lysiuk said: “[The] deal is driven by distribution (the golden rule for success in this industry), along with wider product range, greater scale and diversified revenues. All of these are very good reasons and the deal looks to be a good one."

Stuart Duncan, analyst at Peel Hunt said the deal would “strengthen distribution capability at both firms.” 

FTAdviser understands that the combined company is forecast to achieve cost savings of £7m a year after the merger. This will include saving from combining the back office functions of the two companies.

An individual with knowledge of the transaction said this figure was likely to prove conservative, and it is possible that enough cash could be saved in year one to be equal to Miton’s annual profit for 2018 of £8.9m

The individual said a major reason for the increase in merger and acquisition has been the increased cost of regulation, while fund manager pay has also risen. The individual said an increase of £1m in a company’s costs tends to take £1m off the stock market value of the company, and this means it has become very difficult for smaller asset management companies to merge.  

James Sullivan, the UK managing director of MitonOptimal and shareholder in Miton through his funds, said: "Further M&A is inevitable in our sector. There is a sense of kill or be killed. Regulatory changes and pressure from the passive community have turned up the heat, and size synergies matters more now than it has done in the past.

"Most asset management companies remain cash flow positive, and are paying big dividends, representing the current profitability on the sector. But future earnings appear less predictable, which is why now is the time to buddy up.

"I think it’s good deal for both parties, however Miton Group have sold out cheaply, and Premier appear to have got themselves a good deal. The shares reacted positively but remain one of the lower rated companies in their sector, not forgetting the cash pile Miton have on their balance sheet."

MitonOptimal is an unrelated company to Miton.

Fenchurch Advisory Partners advised Premier on the deal, while Spencer House was the lead adviser for Miton. 

david.thorpe@ft.com