Rathbones to buy Investec W&I in £839m deal

Wealth manager Rathbones is poised to buy Investec’s UK wealth division in an all-share deal worth £839m, creating a UK market leader with around £100bn in assets.

The deal will see new Rathbones shares issued in exchange for Investec Wealth & Investment, as Investec Group becomes a “long-term strategic shareholder” in the expanded company, with a 41.25 percent equity stake and 29.9 percent of the voting rights.

Under the terms of the deal, which excludes Investec’s Swiss and international wealth business, Rathbones shareholders will own 58.75 percent of the combined group and 70.1 percent of the voting rights.

Rathbones and Investec said in a joint statement on Tuesday: “The Combination brings together two trusted and prestigious UK asset management companies with closely aligned cultures and business models and a shared commitment to customer-centric values ​​and sustainable growth.

“The combination represents a significant value creation opportunity for both Rathbones shareholders and the Investec Group.

“The combination will deliver significant economies of scale through the creation of the UK’s leading discretionary asset manager with approximately £100bn of funds under management and administration.”

Rathbones Shares rose 2.2 percent in early trading to 1,924p.

The expanded Rathbones Group is targeting an underlying operating margin in the low 20s by 2023 and a return to the high 20s by 2024.

It then aims for an underlying operating margin of 30 percent or more in the medium term.

It will be chaired by Clive Bannister with an executive team led by Paul Stockton, CEO of Rathbones, but will now include Iain Hooley, CEO of Investec W&I UK.

Upon completion, Investec Group will appoint two representatives to the Board of Directors as non-executive directors, and will have the right to do so as long as it holds an interest of at least 20 percent.

The deal is the latest of many in recent years as the burgeoning wealth industry looks to build scale in the face of higher regulatory and technical costs.

“This is an industry ripe for consolidation and we want to be at the forefront of this,” Stockton told reporters Tuesday morning, citing rising inflationary pressures on the industry.

“This deal is about growth opportunities.”

Regarding possible job losses as a result of the deal, he added: “Some changes will have to be made, but it is much too early to talk about such details.”

The deal will deliver ‘significant economies of scale’, the firms added, with the expanded Rathbones group targeting annual run-rate cash synergies’ of at least ‘£60m’ driven primarily by cost savings and higher net interest income ‘.

Rathbones will also have a ‘multi-channel distribution capability’ for retail customers, intermediaries and charities, through an extensive network in 23 locations across the UK and the Channel Islands.

For its part, Investec said the deal enabled it to commit to the UK wealth sector “in a capital efficient way” while improving its client proposition in banking and wealth management services.

It will also increase the contribution of capital-light, recurring income to Investec Group and create “sustainable value” for shareholders.

The groups expect the deal to close by the end of the third quarter of this year, subject to regulatory and shareholder approval.

Mr. Bannister, Chairman of Rathbones, said: ‘This transaction not only provides compelling strategic and financial rationale, but also accelerates Rathbones’ growth strategy.

“By operating at scale, the group can offer customers and colleagues an even more attractive proposition, support future growth and create significant value for Rathbones shareholders.”

Fani Titi, CEO of the Investec Group, added: ‘The combination of Investec W&I UK and Rathbones brings together two companies with a long tradition of wealth management in the UK and closely aligned cultures.

“The strategic fit of the two companies is compelling with complementary strengths and capabilities to enhance the overall proposition for customers. This will be supported by the strategic partnership which offers attractive growth and collaboration opportunities for both groups.

“The transaction represents a real step change and a long-term opportunity for our UK asset management strategy, underlining our commitment to the UK asset management market and enhancing our UK business as a whole.”