The merger of Rathbones and Investec’s wealth and investment arm, announced this morning (April 4), marks another milestone in the continued consolidation in the wealth and asset management sector.
The new “enlarged” group will manage £100bn of assets, with 23 locations in the UK and Channel Islands, adding 45 financial planners and 40,000 client relationships to Rathbones.
The deal, which is subject to regulatory approval, as well as that from Rathbones’ shareholders, is expected to complete in the fourth quarter this year.
Although no cash will change hands, through a share issue Rathbones paid £839mn for Investec W&I.
The deal was promoted by Investec as a merger, however the enlarged group will remain under Rathbones’ branding, with the company’s chief executive officer and chair staying in place, with Investec W&I’s chief executive joining the management team.
Rathbones will continue to be listed as an independent company on the UK stock exchange.
Investec will appoint two representatives onto Rathbones’ board of directors, and it will have a 30 per cent share of voting rights, though its overall ownership of Rathbones’s share capital will be 41 per cent.
FTAdviser understands this reflects Investec Group's intention to remain a long-term strategic investor in an independent Rathbones Group, while also preventing complications in respect of the takeover code.
The deal is expected to generate cost savings and increased income of £60mn per annum (pre-tax) which will take at least three years to come into effect.
Of the £60mn in synergies, £18mn will be generation from the consolidation of technology platforms and operations, £32mn from that of “enablement functions”, third parts services, and property.
The group expects net income to increase by £19mn as a result of bringing Investec’s clients and cash onto Rathbones’ platform and banking license.
Analysts at Jefferies said these do not seem a big stretch over three years.
"We regard their synergy targets as realistic," the research house said in a note this morning.
The reaction by the market so far seems "muted", Jefferies added, with Rathbones' shares up 2 per cent at lunchtime.
Merger experience
Paul Stockton, chief executive of Rathbones, highlighted the company's previous experience in acquiring companies in a press call this morning.
“This is not the first time that Rathbones has entered onto the acquisition trail…we have integrated before a number of businesses.”
The group bought financial planning firm Saunderson House in 2021, and acquired Spiers and Jeffrey, a Scottish wealth management firm, in 2018.
“Our ability to integrate businesses is well-known in history,” Stockton said.
Stockton added that the deal recognises the need for scale in the industry.
“All of us are facing that inflationary pressure, and need to provide continual value to our clients, [with] a continual need to be much more efficient in what we do and continue to invest in the business.”
There is also likely to be a number of redundancies of the deal, as part of the cost savings, though both Stockton and Fani Titi, chief executive officer of Investec Group, declined to say how many are planned.
Other impacts
The deal is likely to concern clients of both companies, said Ben Yearsley, director of Fairview Investing.
“There are always unintended consequences [from M&A], and there is always a fallout.”
The time it will take for the deal to complete will be “unsettling” for clients, he added.
“The increasing centralisation of many functions [means] the heyday of branches doing their own thing and being their own masters has probably gone…it puts more and more power in the hands of a few.”
The merger will also make it harder for funds to get off the ground, he said.
“You will either get a yes or no from London, and that is it…because of concentration risk and not wanting to back new funds without a track record.”
sally.hickey@ft.com
