Strength through collaboration

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
Strength through collaboration

There are a number of reasons why such marriages of convenience take place, but there is no doubt that fund managers continue to be under considerable duress. 

An ever-increasing regulatory burden, downward pressure on fees and the growth in popularity of passive investment strategies are combining to create considerable challenges for active asset management houses. 

It is expected that the alignment of operating platforms alone will create recurring pre-tax cost synergies of approximately £7m a year across the combined group

And while there is much to be said for the boutique business model, against a backdrop of squeezed profit margins, attaining scale through M&A activity as opposed to organic growth is becoming ever more attractive. 

 

Upon completion of the merger, the Premier Miton Group, as the new entity will be called, will have assets under management totalling £11.5bn. 

This will not be sufficient to catapult the combined business into the ranks of the mega-investment houses, but it will nonetheless create considerable economies of scale. 

According to the announcement confirming the proposed merger, it is expected that the alignment of operating platforms alone will create recurring pre-tax cost synergies of approximately £7m a year across the combined group. 

This will be in addition to a more diversified revenue stream from an enlarged range of funds, as well as a broader distribution. 

The protagonists in the merger claim that the new Premier Miton Group would have been the fifth largest contributor to UK net retail sales for 2018, based on data in 2019’s Pridham Report.

Premier would appear to be the dominant party in the deal, bringing a greater level of AUM. Additionally, post-merger Premier executives are taking most of the top roles, with its chairman Mike Vogel and chief executive Mike O’Shea occupying the same posts in the enlarged company.

However, the company will be headquartered in London, where Miton is based.

This makes sense logistically as this is likely to be a more accessible flagship office.

Whether this will mean all teams will come together in one location is unclear, but we consider it unlikely all personnel will adopt the London office as their home on a full-time basis.

Cultural implications

The deal seems compelling from a business perspective and may well be received as good news to shareholders, but what does this mean for financial advisers and their clients, once the ink is dry on the agreement? 

As with any merger, the corporate culture embraced by the combined business will be important in ensuring that investment professionals will be able to run money as they have in the past, as well as in retaining key talent. 

Premier’s chief executive, Mr O’Shea, has pointed out that the two businesses are “complementary and culturally aligned”, a view that we largely share. 

Both Miton and Premier have a similar approach to running money and are committed to active management. 

Neither company imposes a house style and each manager is allowed to follow their own process. 

This should act as some reassurance to those invested in the funds of the respective businesses.

Key points

  • Miton and Premier announced a merger
  • Premier appears to be the dominant party
  • There is unlikely to be a huge rationalisation of funds

We would also agree that this merger brings together two businesses with largely complementary fund ranges. 

Similarities and differences

Premier enjoys a strong following for its multi-manager offering and its multi-asset team is well-entrenched and established within the IFA market, with a range of outcome-oriented and risk-targeted funds covering a broad range of investor risk profiles and needs.

Miton, on the other hand, has built a strong reputation based on its non-core UK equity funds and offers a number of popular strategies, including its UK Value Opportunities, UK Multi Cap Income and the Diverse Income Trust.

That is not to say there is not some crossover within their respective fund ranges. 

Miton also has a range of multi-asset funds that caters for a number of investors’ growth and income aspirations.

As with Premier, the managers of these funds are outcome-focused and while their approach is not exactly the same as any of the Premier vehicles, they are likely to be competing for similar business. 

Given the investment approaches of each group have been longstanding it seems unlikely that the two teams will come together under one banner and product range. 

Within its UK equities fund range, Premier offers the Premier UK Growth fund, and the Premier Income, Monthly Income and Optimum Income funds. 

While these do not directly overlap with Miton’s UK equity funds, over the longer term six UK strategies feels a few too many, in our view.

In addition, both businesses have an infrastructure fund we believe is unlikely to be sustainable in the long run. 

We would not be surprised, therefore, if there is some level of rationalisation, but this is more likely to occur over time, rather than as soon as the deal is done.

Optimistic outlook

Meanwhile, Premier has also been addressing certain challenges faced by its multi-asset range. 

It is aware that its core multi-manager business looks expensive relative to the market and is tackling this by launching a new low-cost range of funds as well as already having a best of internal manager range of multi-asset solutions, which has recently been expanded. 

These carry lower charges and draw on the wider resources within the business, meaning it will boast solutions for investors at most price points.

Post-merger, both Miton and Premier look to the future with optimism. 

On announcing the tie-up, Mr O’Shea claimed the greater scale and financial strength will enable the Premier Miton Group “to invest for future growth, with broader and deeper investment capabilities, enhanced distribution and a more efficient operating platform”. 

Miton’s chief executive, David Barron, looked forward to offering clients “a broader and more compelling range of investment solutions”. 

We are inclined to believe this merger brings together two largely complementary fund groups and that those investing in the funds ofthe respective businesses should feel confident that their assets will continue to be managed as they have been historically. 

As the group seeks some savings through greater efficiencies, there will no doubt be a level of consolidation across the fund range, but we do not foresee any radical shake-up that might unnerve investors.

Alex Farlow is head of risk-based solutions research at SquareMile Investment Consulting and Research