A private equity firm is set to revive the Tilney and Smith & Williamson merger that had been put on hold due to concerns from the Financial Conduct Authority over the debt pile the merged company would take on.
The merger was first unveiled in September 2019, creating what was then described as a £45bn wealth manager to rival the likes of Brewin Dolphin and Rathbones. The deal had been valued at £625m. At the time, the merger, which would have created the newly-named company Tilney Smith & Williamson, was described as a “game-changing” tie-up for UK fund distribution.
But in January, Tilney confirmed the FCA had concerns with the structure of the deal and that it would be engaging with the regulator to get the deal approved.
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Warburg Pincus seals its sixth wealth management deal
Over the weekend, Sky News reported that Warburg Pincus would inject more than £250m into the deal. The report said the FCA had required additional equity investment of at least £200m before it would approve the deal.
Tilney confirmed the investment from Warburg Pincus in a press release issued Monday morning. Rival private equity house Permira is a significant shareholder in Tilney and will also be an investor in the deal.
AGF Management, a Canadian fund house, has a stake in Smith & Williamson. It said in a press release on Monday morning that it would receive a total payout of £176.5m from the revised transaction and have no equity consideration in the merged group.
Tilney Smith & Williamson would be Warburg Pincus’s sixth investment in a wealth management company. In January, it was reported to be circling Quilter, although there have been no further developments on a possible deal there.
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Original deal described as ‘debt ridden and capital poor’
GBI2 managing director Graham Bentley said the original deal would have seen AGF’s stake in Smith & Williamson cut to less than 3% of the merged group in exchange for cash and shares, but with little new investment to boost the new business’s financial strength.
“Clearly the regulator was uncomfortable with the structure of the merged business under the original deal – debt ridden and capital poor.”
The new transaction would increase the equity investment and reduce debt via a capital injection, Bentley said.
Covid-19 delays deal
The deal originally had an expiry date of 16 April 2020 but this was extended to the end of May due to the coronavirus outbreak.
The revised deal is now expected to complete in H2 2020, subject to regulatory and anti-trust consent plus approval from Smith & Williamson shareholders.
The combined business would generate £530m revenue and would rank as the fourth largest UK wealth management business by assets under management. Its combined AUM has fallen slightly from the original estimate, when the deal was first unveiled, to £44bn.
Tilney confirmed the valuations of the original deal remain unchanged with the Smith & Williamson acquisition valued at £625m while the total enterprise value being £1.8bn.
Tilney and Smith & Williamson said in the release that net flows had increased in the first half of 2020 compared to the period last year, despite Covid-19.
Smith & Williamson co-chief executives David Cobb and Kevin Stopps said: “The revised structure retains both these strategic benefits, as well as value for our shareholders, and delivers a more robust financial structure and a strong additional partner for the future in Warburg Pincus.”
Tilney chief executive Chris Woodhouse (pictured) said the “compelling rationale” behind the deal had been validated by Warburg Pincus “making a significant investment in the business against the backdrop of a major global health crisis and related challenges in the economic environment”.
“This is a real vote of confidence in what we are building and its prospects. Integration planning is well advanced and we look forward to progressing the deal through to completion in the coming months.”
