Hargreaves Lansdown Offer Brings UK Wealth-Manager M&A in Focus

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(Bloomberg) — Hargreaves Lansdown Plc’s decision to reject a takeover offer from a group of investors is putting British wealth managers in the spotlight as shares of some of its peers rallied on Thursday in London.

The UK’s largest platform for retail investors said Wednesday that it rebuffed the £4.7 billion ($6 billion) approach by CVC Capital Partners and a unit of Abu Dhabi Investment Authority, saying the price “substantially undervalues” the firm and its prospects. The consortium, under local rules, must declare whether or not it intends to make a further offer by 5 p.m. on June 19.

The investors offered to pay 985 pence ($12.55) per share on April 26, which represented a 30% premium at the time, but Hargreaves Lansdown’s stock soared as much as 18% to 1,151 pence on Thursday following the regulatory filing the previous evening. The offer is still less than half of Hargreaves Lansdown’s share price five years ago.

While a transaction isn’t certain, a potential deal may have positive implications for rivals such as Quilter Plc, AJ Bell Plc, and St James’s Place Plc as well, analysts said, highlighting valuation disconnect as a wave of M&A sweeps through an industry seeking scale and cost savings. Shares of AJ Bell jumped as much as 13%, partly boosted by its earnings, while St James’s Place climbed almost 6%.

RBC analyst Ben Bathurst said in a research note that the news “further demonstrates the ongoing disconnect between the market valuation of listed UK wealth names and the value ascribed to these businesses by both private equity and international financial institutions.”

This year, UK-based alternative investment manager Pollen Street Capital agreed to buy pension and wealth consultant Mattioli Woods Plc. Other notable deals in the past include RBC Wealth Management’s takeover of Brewin Dolphin Holdings Plc; the merger between Tilney and Smith & Williamson in 2020; and, Canaccord Genuity Wealth Management’s acquisition of the private client investment business of Scottish private bank Adam & Co from NatWest Group Plc in 2021.

The UK market remains cheap relative to other major markets, as shown by the EV/Ebitda multiple of the MSCI UK Index. The UK benchmark trades at about 38% discount to the MSCI World Index.

Andrew Ells, an equity sales analyst at Peel Hunt, says UK investment managers are attractive takeover targets since they’re cheap given a strong correlation between organic growth in listed businesses and the cyclical low in terms of investor sentiment.

Listed UK companies are undervalued across the board, and the wealth management sector is under material cost pressures across Europe, according to Joachim Klement, a strategist at Liberum. “The UK has a relatively fragmented wealth management market and consolidation can help counter the cost pressures and gain economies of scale,” he said.

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Edmund Shing, PhD

Global Chief Investment Officer
BNP Paribas Wealth Management

Edmund has over 29 years of experience in financial markets in a wide variety of positions, ranging from proprietary trading to portfolio manager in a number of financial institutions in London and Paris.  He previously held the role of Global Head of Equity and Derivative Strategy at BNP Paribas in London from 2015 to 2020, and has been Chief Investment Officer at BNP Paribas Wealth Management since November 2020.

Edmund is responsible for piloting our investment strategy and will continues to rollout out recommendations and themes with actionable advice that brings our expertise to our clients and support to our client-facing teams.  In this time of change, his expertise in following and anticipating markets is a true value added for both our customers and those at Wealth Management who serve them.

Edmund has a PhD in Cognitive and Computing Science from the University of Birmingham in the United Kingdom, and has done advanced studies in Knowledge-Based Systems and in Experimental Psychology.  He is an EFFAS-certified financial analyst. He has also authored the book “The Idle Investor” published by Harriman House in 2015, proposing 3 simple investment strategies that take only a few minutes to execute per month.

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