With private equity houses – and a Gulf sovereign wealth fund involved – the purchase of this investment platform highlights a number of trends affecting this end of the wealth management spectrum.

A group of investors including CVC Group, Abu Dhabi’s sovereign wealth fund and Nordic Capital – a private equity house – have agreed to buy UK investment platform Hargreaves Lansdown for £5.4 billion  ($6.88 billion) in cash.

Hargreaves Lansdown said the deal exploits continuing "tailwinds" behind wealth management, and also meets a need for continued digitalisation of the sector in the UK.

The offer for Hargreaves Lansdown by the “Bidco” represents a premium of about 54.1 per cent to the firm’s closing share price of 740 pence per share on 11 April 2024 (the last business day before the consortium made its first approach to Hargreaves Lansdown’s board).

This is the final offer that the consortium is making for the business, according to a statement from HL to the London Stock Exchange on Friday last week. 

Shares in the investment house were up about 2 per cent around noon, London time, on Friday 9 August.

Hargreaves Lansdown's assets under management stood at £155.3 billion at 30 June this year, rising from £10.2 billion as at 30 June 2007 – the year it was listed on the London Stock Exchange. The firm was founded in 1981.

The deal highlights the continued involvement of private equity firms as players in the UK wealth management M&A marketplace. The involvement of a Gulf-based sovereign wealth fund in such a deal is notable. An Abu Dhabi Investment Authority subsidiary, Platinum Ivy, is part of the consortium. 

"The acquisition of Hargreaves Lansdown by private equity underscores the valuation disconnect for wealth managers between public and private markets. With over 25 private equity-backed wealth management firms in the UK, this move isn't surprising. Over time, we expect to see further consolidation among these firms, and with robust private equity backing, HL could emerge as a pivotal player in this consolidation through M&A activities," Christian Kent, managing director in Houlihan Lokey’s FinTech Group, said in a note.

“Under private equity ownership, the platform will likely experience strategic and managerial changes, addressing the structural challenges it has faced in recent years. That said, Hargreaves Lansdown possesses substantial brand value with nearly 2 million active customers and the private equity business model, with a longer-term focus and strategic expertise, could help HL drive necessary changes outside the constraints of the quarterly earnings' cycle," Kent said. "One area of potential development is the integration of advisory services into HL’s business model, aligning it more closely with other private equity-backed strategies in the sector. I’m confident there will also be a focus on improving technology and automation to facilitate a more competitive pricing structure for clients.”

“Fair and reasonable”
“The HL independent directors, who have been so advised by Fenchurch, Barclays, Deutsche Numis and Morgan Stanley as to the financial terms of the cash offer, consider the terms of the cash offer to be fair and reasonable,” the firm said. 

Explaining the deal’s rationale, Hargreaves Lansdown said: “HL is expected to benefit from numerous tailwinds over the coming decade, driven by increased individual responsibility for savings, pension freedom, an ageing population, further digitalisation of the wealth process, the increasing importance of data, and AI-led activities.”

“At the same time, the direct-to-consumer market will become significantly more competitive, driven by a combination of increasing sophistication of established competitors, technology advancements and new entrants continuing to disrupt the market,” it said. 

Private equity involvement
In the UK, there have been several private equity purchases of advisory firms. In October 2021, for example, Further Global Capital Management bought a majority stake in financial advisor and tax firm Progeny; in March 2022, private equity-backed MKC Wealth purchased London-based IFA firm Anthony, Bryant & Company. In January 2022, Verso Wealth Management, the digitally-driven wealth management group, acquired Pavis Financial Management Limited.

In June 2022, US private equity house Lovell Minnick Partners agreed to buy a majority stake in a UK-based wealth management firm, London & Capital – a business which has made a speciality of serving expat Americans and those with US connections.

Such private equity involvement in the wealth and asset management space has created concerns. The UK regulator, the Financial Conduct Authority, has examined the trend, pondering potential risks. A question that advisors have raised in the past is whether the time horizons of a typical PE fund – such as five years – align closely with long-term interests of the end clients.

More listed firms are leaving public markets, Houlihan Lokey’s Kent said.

“The listed market has fallen out of love with UK wealth managers and we have seen one way traffic in terms of public market exits, including AFH, Harwood, Mattioli Woods, Nucleus, Curtis Banks, IFG, Charles Stanley and Brewin Dolphin. It wouldn’t surprise me if others follow in the future," Kent said.