Last week Rathbones announced that it had struck a £150m deal to acquire Saunderson House, propelling it up the ranks to become the UK’s third largest wealth management firm.
The deal, which is currently subject to regulatory approval and likely to complete within the next quarter, will more than triple the number of Rathbones’ financial planners, add more than 2,000 clients with an average portfolio of £2.2m, and boost its pro forma FUMA to £8.3bn.
With such great benefits to be gained through the deal, few have questioned the hefty price tag. Fairview Investing director Ben Yearsley says that handing over £150m in exchange for £4.7bn in assets looks like a great deal.
He adds, however: “£34m in revenue and £6m in operating profit – suddenly it looks expensive. With most of it funded out of existing resources, which will have been earning nothing, at least it will be earnings positive. However, to make it work they will need to integrate the business quickly and continue to grow it.”
Scott Gallacher, chartered financial planner and director at Rowley Turton, agrees that the sale price could be considered high.
“In terms of the price, it was £150m for £4.7bn of funds under management and administration, 2,200 clients and 55 financial advisers. This equates to 3.2% of assets under advice, which looks a little high compared to other sales I have seen,” he says.
“However, given an average of £85m per adviser or £2.2m per client, Saunderson House does appear to be a very efficient operation, and this perhaps justifies the price paid, especially when the deal almost doubles the size of Rathbones’ funds on that side of the business.
“So, there may be good opportunities for synergies and economies of scale to deliver additional value to Rathbones.”
Specialist financial planning
Saunderson House has a strong reputation for providing tailored advice to large accountancy and law firms, even more so among those with complex financial affairs.
The appeal to Rathbones’ chief executive Paul Stockton (pictured) was the ability to expand his firm’s financial planning offering.
“We were fortunate that a high-quality specialist business which fits our culture became available,” he says. “Conversely, one of the reasons why Saunderson House liked Rathbones was because of the strength of our investment propositions for advisers and the level of resource we can bring to that.”
He adds that central to Rathbones’ strategy is to grow the business through support for UK and international advisers, with the firm running more than £20bn in client assets in this space.
CWC Research managing director Clive Waller says: “[The Rathbones and Saunderson House deal is] an interesting merger, with an adviser firm getting out of the hands of private equity for a change. Both are high-quality firms – Saunderson House focuses on top-end professionals worth a couple of million upwards, and Rathbones is a high-end discretionary manager that has chosen not to compete in the mass affluent world.”
Waller adds: “The combined firm has asset management by Rathbone, alongside their in-house platform, wealth management and financial planning. It looks like a good case for vertical integration and, hopefully, one model that would benefit shareholders and clients.”
Continued consolidation
Rathbones has been keen to expand its presence in the intermediary space for several years, missing out on striking a deal with competitor Smith & Williamson in 2017. A year later it bought Speirs & Jeffrey for £104m – Scotland’s second largest wealth management firm.
Independent wealth expert Adrian Lowcock expects more change in the wealth management space as technology continues to allow companies to reduce costs and streamline administration.
“Consolidation across the wealth management industry looks set to continue, although there is still plenty of appetite at the other end as well, with wealth managers striking out on their own and not being restricted by larger houses,” he says.
“Costs are a huge driver for consolidation as they have direct impact on performance, but larger groups can also leverage other synergies through streamlining back offices. The ability to establish a national network also makes consolidation attractive.”
Consumer risk
Rathbones isn’t the only company to benefit from the surge in merger and acquisition deals. The past few months alone have seen announcements from Mattioli Woods, AssetCo, Waverton Investment Management and Lumin Wealth.
But while these deals are beneficial for the companies involved, Gallacher questions whether the increasing consolidation within wealth management is good for the end consumer.
He has concerns about the increasing influence these companies will have on the direction of the regulator, which will more than likely have the interests of the company over the consumer at heart.
There is also a risk that smaller advice firms are gradually squeezed out of the market, either by being engulfed by larger players or because, logistically, they are just too small for distributors to bother doing business with.
On the Rathbones deal, Yearsley says: “[Saunderson House] is clearly a good quality business – you don’t get to an average £2.2m AUM per client by cutting corners, so it would seem to fit well with Rathbones.
“What it does do is give added scale and firepower to Rathbones to challenge the big beasts in the market. Lots of the more historic businesses have been left behind by the likes of St James’s Place, who have done more in decades than many of the existing businesses have done in centuries.”
