Rathbones affirmed the M&A rumours on Monday by notifying shareholders that it was in exclusive talks with S&W over a potential merger.
If the deal goes through, it would create a firm with £56bn of assets under management or advice and give Rathbones valuable access to S&W’s tax planning and business services capabilities, which it has been strengthening in recent months.
However, in its update to shareholders, Rathbones stressed that:
“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.”
If agreed upon, “any such transaction will be subject to the approval of shareholders,” the investment manager added.
Sky News first reported on Rathbones’ merger plot over the weekend, stating a deal was expected to be announced within weeks and would be in the form of a structured takeover.
The match-up will also attribute a valuation of circa £600m to S&W, according to a Sky News source.
Despite news of a potential alliance, Rathbones’ shares were trading only marginally higher on the day, up 0.94% to £28.03p per share.
The FTSE 250 wealth manager, which has a market cap of £1.4bn, has seen its shares increase in value by 41% year-to-date.
Rathbones’ total funds under management stood at £36.6bn at the end of the first half of 2017, with the investment management arm contributing £32bn.
Its potential takeover target, S&W, ended the year to 30 April 2017 with £18.8bn in FUM and advice, by contrast.
Ryan Hughes, head of fund selection at AJ Bell, said the potential merger between Rathbones and S&W “is the latest evidence that we are in a period of consolidation in the asset management industry”.
“Both of these businesses have remained at the periphery of the large asset managers and struggled to gain major traction, with many of their strategies remaining sub-scale,” he said.
“While there may be wider benefits from these two businesses coming together given that they do much more than just asset management, the ability to build greater scale has to be seen as a key opportunity as active managers look to take the fight back to the passive giants.”
The threat of increased regulatory pressure has also made scale an issue of great importance for asset managers.
Last month, Rathbones admitted its unit trust margins would be hit in order to comply with the new Mifid II research bundling requirements.
Although Hughes sees little areas for product overlap between the two firms, he noted “there is some scope for potential consolidation in some areas of fixed interest and UK equities”.
“With markets at elevated levels and passive managers such as BlackRock and Vanguard taking ever greater market share, there are likely to be further opportunities for mid-tier asset managers to come together, find synergies to cut costs and look to regain the impetus for active management,” Hughes added.
