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Brewin Dolphin acquisition underpins value of sector

Brewin Dolphin acquisition underpins value of sector

The price Royal Bank of Canada paid for Brewin Dolphin underpins the value of the financial wealth management sector in the UK, analysts have said.

RBC announced the £1.6bn deal for the wealth manager, which represents around 21 times current earnings.

Responding to the figures, Stuart Duncan, analyst at Peel Hunt, said it is a “fairly punchy” multiple for the business. However, he said there would be a number of synergies that can reduce costs and bring that multiple down.

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“It does underpin the value of the sector because it will continue to consolidate,” he added.

Ben Yearsley, consultant at Fairview Investing, said he was surprised at the price. “It’s not like they're on bargain basement 5x earnings; 22 is a heavy multiple for a traditional business which isn’t, for example, a tech business growing at 40 per cent a year.”

But Yearsley said that a concern for him would be market volatility.

“If markets take a tumble this year because of interest rates going up, that 22 times could suddenly turn into 34 times, as profits are so geared into markets.

“[And] if markets fall by 10 per cent what could that do to Brewin’s profits? They may fall much more than 10 per cent and therefore it’s a heavy price for when there’s a lot of uncertainty around.”

However, Duncan argued that the uncertainty is exactly why now is the time to buy. He said: “If you assume markets will generally go up over time, this could be a good time to buy businesses because valuations are more realistic.

“Wealth management has good long-term structural growth prospects and Brewin Dolphin should be able to take advantage of that.”

The deal is the second time a North American firm acquired a UK wealth manager in recent months. In July last year, Raymond James acquired Charles Stanley for £278.9mn.

At the time, Paul Abberley, chief executive officer of Charles Stanley, said Raymond James recognised Charles Stanley’ reputation, heritage and talented staff, as well as the two firms' shared client-centric approach and compatible structures and cultures.

Advantages of UK market

In the announcement of the deal, Doug Guzman, head of RBC Wealth Management, said the UK is a key growth market for RBC, and Brewin Dolphin provides it with an “exceptional platform” to significantly transform its wealth management business in the region.

“By combining two highly complementary businesses, we will increase the depth and breadth of our services and position the combined business as a premier integrated wealth management provider to private and institutional clients.”

He said RCB will continue to invest in the business to take it to “greater heights”.

“We are confident that this acquisition will deliver benefits to our combined clients, employees and stakeholders.”

According to Willis Towers Watson, global merger and acquisition (M&A) activity in 2022 has recorded a strong start with the number of completed deals valued at more than $100mn (£76.2mn) in the first quarter exceeding the same period last year.