The transaction is one of the larger M&A deals to be proposed in the UK’s wealth management arena over recent years.
Royal Bank of Canada has agreed to make an all-cash purchase of the UK’s Brewin Dolphin in a deal valuing the latter at about £1.6 billion ($2.1 billion), the firms announced today. The move is one of the largest M&A deals to have been inked in the UK wealth space over recent years.
Under the terms of the acquisition, Brewin Dolphin shareholders will receive 515 pence per share. The price equates to a 62 per cent premium and values Brewin Dolphin at 2.8 per cent of its £55.0 billion of assets under management as at 28 February.
Shares in Brewin Dolphin surged this morning in London, rising 61 per cent to 511 pence per share as of 08:15 am London time.
“The UK is a key growth market for RBC, and Brewin Dolphin provides us with an exceptional platform to significantly transform our wealth management business in the region, giving RBC Wealth Management a # 3 market position in the UK and Ireland, in addition to being a market leader in Canada, with a growing position in the United States. By combining two highly complementary businesses, we will increase the depth and breadth of our services and position the combined business as a premier integrated wealth management provider to private and institutional clients," Doug Guzman, group head, RBC Wealth Management, RBC Insurance and RBC Investor & Treasury Services, said in a statement.
Barclays and Lazard are advising Brewin Dolphin on the deal. The “Bidco” entity handling the deal is a newly-incorporated wholly owned subsidiary of RBC Holdings (Channel Islands) Limited, the holding company for RBC's Channel Islands operations, and indirect subsidiary of RBC. Under such a combination, the firms said they would, on a pro-forma basis, build a firm with £64 billion of assets under management, combined annual revenue of £545 million for the full year of 2021 and around 600 client-facing professionals (as at 31 December 2021).
Brewin Dolphin directors intend to recommend that shareholders support the deal, the firms said in a joint statement. "Building on the strong organic growth that we have achieved to date, the combined businesses will create an attractive platform for future growth. As part of RBC, we would be able to provide our clients with a broader range of products and services, and expand our distribution channels through leveraging RBC's global presence. We share complementary values which emphasize the importance of long-standing client relationships and an inclusive culture supportive of employees and local communities. Our focus will be on maintaining continuity, so that we build on what we have already achieved. I am looking forward to us working together to enhance our market position as a leading advice-focused, digitally enabled wealth manager," Robin Beer, CEO of Brewin Dolphin, said.
Without spelling out whether jobs could be shed as a result of the deal, RBC told WealthBriefing: "Based on the due diligence carried out to date, RBC has identified some potential overlap in roles mainly in functional and administrative areas, which may lead to limited headcount reductions. The control environment of the combined business will be the priority and any headcount reductions will only be considered when there is duplication and overlap.
"At this stage RBC has not yet developed any specific proposals as to how any such headcount reductions might be implemented and the finalisation and implementation of any reductions will be subject to comprehensive planning and appropriate engagement with stakeholders, including affected employees. It is anticipated that efforts will be made to mitigate redundancies via natural attrition, the elimination of vacant roles and alternative job opportunities in RBC WMI or the broader RBC Group. Any affected individuals will be treated in a manner consistent with Brewin Dolphin’s and RBC’s high standards, culture and practices. RBC intends to approach management and employee integration with the aim of retaining and motivating the best talent across the combined business to create a best-in-class organization.
"The anticipated integration and productivity enhancements could involve de minimis headcount reductions of employees across the combined 90,000 employees of RBC and Brewin Dolphin and, as noted above, mainly involve those personnel in overlapping functional and administrative areas on a best talent basis and those related to Brewin Dolphin being a publicly listed company."
What RBC wants
The Canada-based firm said that it also likes Brewin Dolphin's position within the broader UK wealth sector as one of the “foremost asset gatherers in a secular growth and consolidating market and its robust investment performance.”
Such a deal suggests that the UK wealth sector remains promising despite, or even because of, upheavals from developments such as Brexit, changed geopolitics and a changed business climate that puts a premium on strong financial advice. Recent years have seen developments such as Lloyds Banking Group’s wealth joint venture with Schroders, the Tilney/Smith & Williamson merger, Old Mutual Wealth's purchase of Quilter Cheviot, and JP Morgan’s purchase of Nutmeg, the robo-advisor platform.
The transaction will put together Brewin Dolphin and a Canadian bank that is dual-listed in New York and Toronto with a market cap of about £121 billion. RBC has an Aa1 rating from Moody’s. RBC Wealth Management International, which operates in the UK and Channel Islands, has total assets under management and administration of £44 billion as at 31 December 2021, of which 13 per cent was held in deposits, 11 per cent in wealth and 76 per cent in trust and other segments.
RBC has been present in the UK since 1910 and employs more than 2,300 people in the UK across its wealth, capital markets, asset management and investor services businesses.
In a 3 March research note on UK wealth firms, Investec Securities, which had a HOLD recommedation on Brewin Dolphin, had said of the firm: "Brewins has the potential to become a leading wealth manager operating across all segments of the market. Central to this proposition is its financial planning led offering – be that via its well-established 1762 proposition for high net worth clients or its maturing WealthPilot offering for the mass affluent – combined with the development of a best-in-class technology stack."
"Given the material rewards for delivery of such a strategy, we fully support its pursuit, and appreciate the need for sustained levels of investment to ensure its success. That said, we also understand the market’s concerns over the group’s ability to execute given the recent challenges with the upgrading of its back office systems. We therefore see the successful completion of the group’s new custody and settlement platform as a significant milestone and a potential catalyst for investors to revisit the long-term equity story. With limited potential for outperformance until this is achieved, we initiate with a HOLD rating and await its completion and confirmation that the recent pick up in net flows can be sustained before looking to turn more positive," it said.