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Rathbones and Smith & Williamson in £55bn merger talks

(Update) Rathbones confirms it is in merger talks with Smith & Williamson in a deal that would create a £55 billion wealth giant.

Rathbones and Smith & Williamson in £55bn merger talks

Smith & Williamson's wealth management staff are set for a bumper payout after the business confirmed it was in merger talks with wealth rival Rathbones

A merger between the two would create a £55 billion wealth giant. 

It is understood that the deal would value the combined company at £2 billion, with Rathbones, which has £36.6 billion of assets under management (AUM), the dominant partner with a market value of £1.4 billion.

Smith & Williamson, which runs £19 billion, has been valued at £600 million.

Smith & Williamson is mainly owned by its senior management staff (both past and present) and is currently co-headed by former Wealth Manager cover star David Cobb and Kevin Stopp. It operates 11 offices across the UK, Ireland and Jersey, housing more than 1,700 staff.

The firm recently added five investment partners across its regional network in a raft of promotions across the baord, which also included three new partners in its private client tax department, which advises individuals, families and business owners on tax matters.

It is rumoured that Canadian AGF, which owns 33% of Smith & Williamson, has been looking for an exit for some time- the firm pulled its plans to float in summer 2007 as the financial crisis took hold.

AGF is a C$36 billion (£22 billion) financial conglomerate led by Blake Goldring, who is listed personally as the largest shareholder in Smith & Williamson. The majority of the company is owned by a combination of senior management, and staff both past and present.

The FTSE 250-listed Rathbones is 14.7% owned by staff, according to its latest annual report.

The transaction will be structured as a Rathbones takeover and will be an all-share deal.

Rathbones confirmed the talks in a statement. Company secretary Ali Johnson said: 'Rathbones confirms that it is currently in exclusive discussions with the Smith & Williamson group of companies regarding a possible all share merger of the two groups.

'Whilst these discussions have been underway for some time and the boards of both Rathbones and Smith & Williamson are confident that the combination would bring meaningful benefits for the stakeholders of both businesses, discussions are ongoing and there can be no certainty any transaction will be agreed.

'However, if agreed, any such transaction will be subject to the approval of shareholders. A further announcement will be made as and when appropriate.'

Around 30 minutes into the trading session in London, shares in Rathbones had added 0.58% to stand at £27.93. 

Cantor Fitzgerald welcomed the deal, retaining its 'hold' rating and raising its price target on Rathbones from £23.00 to £27.00 in reflection of 'potential synergies'. 

'The cultural fit looks to be good with both overlap in activities (private client wealth management) plus complementarities such as tax affairs,' Cantor analyst Keith Baird said. 'We would assume that there would be cost synergies involved in this deal.' 

However, N+1 Singer was a little more circumspect about the deal as it repeated its Rathbones sell rating and £21.00 target price. 

'Material cost synergies are possible, given geographical overlap and potential for integration of infrastructure, but would need to be successfully delivered post-completion without client service disruption or staff attrition,' N+1 analyst Andrew Watson said. 

'We see strategic rationale but defer judgement in the absence of confirmed terms of the acquisition and an indication of potential synergies.'

The combined group would see Rathbones, led by CEO Philip Howell (pictured), able to broaden its capabilities, adding Smith & Williamson’s tax and accounting practice (the eighth largest in the UK) to its suite of services.

These would be complementary to Rathbones' private office, while both firm’s asset management arms would be merged to create a significant player.

The two companies in numbers

In the two firms’ last sets of annual results Rathbones pre-tax profits of £50.1 million over the 12 months to the end of December, down from £58.6 million in 2015. Revenue rose by 9.6% to £251.3 million over the same period and total AUM by 17.1%.

Meanwhile, Smith & Williamson’s adjusted operating profit rose 12.8% to £40.6 million over the 12 months to the end of April 2017. Group operating income rose by 9.9% to £244.6 million, with its AUM rising 17.5% and its funds under administration by 39.4%.

Both firms have considerable history, with Rathbones tracing its roots to the 1720s in Liverpool, while Smith & Williamson was founded in Glasgow in 1881.

The two also have considerable national branch networks, with Smith & Williamson having 12 across the UK, Ireland and Jersey, housing more than 1,700 staff. Rathbones operates out of 15 offices throughout the UK and Jersey, and has just over 1,100 staff.

There is therefore considerable overlap between their branch networks, with both companies having offices in London, Birmingham, Bristol, Glasgow and Jersey.

However, if the merger goes through, it would give Rathbones a presence in a number of new locations, including Belfast, Cheltenham and Guildford. Similarly, the deal could enable Smith & Williamson to gain a toehold in the likes of Edinburgh, Cambridge, Aberdeen, Liverpool and Exeter. 

Consolidation has been a consistent theme in the industry as companies struggle to maintain margins in the face of rising regulatory costs and downward pressure on fees.

Smith & Williamson has been contacted for comment. 

* Additional reporting by Dylan Lobo 


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