River and Mercantile is returning to its roots as a “pure play asset manager” as it offloads its £42bn solutions business to rival Schroders.
The fund group confirmed on Tuesday it had struck a deal with Schroders to sell its fiduciary management arm for £230m, a 28.2% premium over River and Mercantile’s undisturbed market cap on 9 August 2021. The deal sees Schroders add to its £717bn in assets under management.
River and Mercantile said it intends to reposition itself as a specialist asset manager and to diversify and grow its investment capability, product range, and geographic exposure.
The deal marks the first significant development for River and Mercantile since industry veteran Martin Gilbert (pictured) invested in the firm via his dealmaking comeback vehicle Assetco. The Gilbert-backed company has also acquired stakes in Saracen Fund Managers, Parmenion and Rize ETF.
Upon completion of the sale, Gilbert’s former Abrdn colleague Alex Hoctor-Duncan, who was appointed to River and Mercantile’s board shortly after Gilbert, will become the fund group’s new chief executive.
Current top boss James Barham will transfer to Schroders to lead the River and Mercantile solutions business and will also serve in a “broader management role”.
Ditching solutions business simplifies business model
Fund buyers viewed the move as a positive development for River and Mercantile, which recently has suffered from anaemic profit margins and sluggish inflows.
Fairview Investing director Ben Yearsley said jettisoning its fiduciary arm, which manages money for pension funds, makes River and Mercantile a “pure play asset manager again” and “simplifies the business to the outside world”.
“The solutions business came in when they merged with P-Solve in 2014,” said Chelsea Financial Services managing director Darius McDermott. “So, I think this will be good for River and Mercantile to focus on asset management.”
Gilbert could be plotting M&A deals for River and Mercantile
Yearsley said he expects to see more M&A in the asset management space “and it is likely both River and Mercantile and Assetco will be involved”.
He said it was plausible River and Mercantile could be a takeover target or an acquirer.
Since Gilbert joined the fund group’s board as deputy chairman in January, the firm has been branching out into new areas like infrastructure and ESG.
Over the last year, it has been investing heavily in its distribution firepower particularly for its wholesale business where it has “under-performed in recent years”.
Simultaneously, it has been planning a major cost-cutting drive and redoubling its efforts on “improving profitability”.
Another acquisition for Schroders
Schroders chief executive Pete Harrison said the deal with River and Mercantile enhances its ability to “meet the increasingly complex needs of pension fund clients and is consistent with our growth strategy”.
The purchase of River and Mercantile’s solutions arm represents the latest in string of acquisitions for the FTSE 100 investment manager. Last December it snapped up wealth manager Sandaire, rolling it into Cazenove Capital, which was acquired by Schroders in 2013.
In 2018, Schroders formed a joint venture with Lloyds Banking Group to create financial planning business, Schroders Personal Wealth.
Bloomberg reported in May it was also mulling a possible takeover of M&G, which would have created a £1trn asset manager.
