Brewin Dolphin Holdings Plc (LON:BRW) today announced that its wholly owned subsidiary, Brewin Dolphin Wealth Management Limited (“Brewin Dolphin (Ireland)”), has entered into a binding agreement to acquire the wealth management business of Investec Group in the Republic of Ireland (the “Business”), (together, the “Transaction”). The net consideration after adjustments for surplus capital is expected to be c.€44m. The Transaction is subject to certain regulatory approvals and completion is expected to take place in the second half of 2019.
· Acquisition of a growing business in one of Europe’s fastest growing economies, with attractive demographics; consistent with Brewin Dolphin’s strategy of growth in assets under management.
· Builds on Brewin Dolphin’s existing business in the Republic of Ireland (“RoI”), to create a top 3 wealth management business in RoI with assets under management and advice (“AuMA”) in excess of €4.6bn.
· Brings, together with the Group’s existing RoI investment team, a culturally aligned, high-quality investment team of 33, covering c.5,000 client relationships.
· The investment team will be joined by only the necessary support staff required to support the expanded business on an ongoing and combined basis.
· The Group will leverage its existing efficient RoI platform and acquire the Business with the investment team and only the necessary support staff as explained above, thereby delivering cost synergy benefits from completion and minimising integration risk.
· Consideration at completion will comprise €37.15m of goodwill plus a payment equal to the value of the tangible net assets in the Business on that date. The value of the tangible net assets at completion is expected to be c.€15m, substantially above the current expected standalone regulatory capital requirement of the Business of c.€7m. The net consideration is therefore expected to be c.€44m, after adjusting for surplus capital.
· The acquired Business would be expected to generate a pre-tax profit contribution of c.€4.5m in the year to 31 March 2019.
· The Business has seen growth in total AuMA of c.€0.8bn since 2015, representing an annual growth rate of c.8% and has grown its revenues over the last two years at c.20% annually.
· Based on the adjusted net consideration, the Transaction expected to be enhancing to adjusted earnings per share on a pro forma basis from completion.
· Group’s total funds as at 31 March 2019 expected to increase to £44.8bn on a pro forma basis.
David Nicol, Brewin Dolphin Holdings Chief Executive, commented:
“This acquisition, which is consistent with our strategy of growth in assets under management, provides us with an exciting opportunity to strengthen substantially our existing presence in the Republic of Ireland, one of Europe’s fastest growing economies. We will also be in a stronger position to benefit from the country’s growing demand for discretionary and advice-led services, supported by favourable demographics, with the country having the youngest population in Europe. Our businesses are highly compatible in terms of culture, values, investment philosophy and client centric approach, which combined with our established platform, will enable us to meet more effectively the growing demand for wealth management services in both the UK and the Republic of Ireland.”
Overview of the Transaction
Brewin Dolphin Holdings PLC is pleased to announce that its wholly owned subsidiary in RoI, Brewin Dolphin Wealth Management Limited, has agreed to acquire the wealth management business of the Investec Group in RoI through the acquisition of Investec Capital & Investments (Ireland) Limited (“ICIIL”, or the “Acquired Company”). This Transaction is subject to certain regulatory approvals and completion is expected to take place in the second half of 2019.
The consideration will be payable in cash and comprise of a payment on completion for goodwill of €37.15m as well as a payment to reflect the value of net tangible assets in the Business at that date. Net tangible assets at completion are expected to be c.€15m, and comprised almost entirely of cash. In the event that the tangible net assets are higher than this, the payment is capped at €17m. The current standalone regulatory capital requirement of the Business is c.€7m. The longer term incremental capital requirement of the combined business in RoI as a consequence of the acquisition is expected to be below this figure, with the result that the majority of the cash acquired is expected to be released over time.
The Business, which manages and administers €2.9bn in client funds, represents a rare opportunity for Brewin Dolphin to increase its scale in RoI, one of Europe’s fastest growing economies. RoI represents a particularly attractive market given the favourable demographics, with the youngest population in Europe. Following completion of the Transaction, Brewin Dolphin (Ireland) will manage and administer funds in excess of €4.6bn in RoI.
The Business is a well-established and high quality wealth management business, headquartered in Dublin, with an additional office in Cork, and has grown its total funds from €2.1bn in March 2015 to €2.9bn as at 31 March 2019. During this period, the proportion of assets managed on a discretionary basis has increased steadily from c.21% to c.36%, and this trend is expected to continue.
The Transaction is being structured whereby Brewin Dolphin (Ireland) will acquire the Business with the investment team and only the necessary support staff required on an ongoing and combined basis to manage the expanded business. This will enable the Group’s business in RoI to leverage its efficient existing platform to deliver cost synergy benefits from completion and substantially reduce integration risk.
Based on the management accounts for the year ended 31 March 2019, the revenues of the Business in the year to 31 March 2019 were c.€17.0m, which would represent an annualised growth rate of c.20% over the last two years. The costs within the Business, together with incremental costs to be incurred by the Group to run the Business, are expected to amount to c.€12.5m. The pre-tax profit contribution related to the Business is therefore expected to be c.€4.5m. The Transaction is expected to be enhancing to adjusted earnings per share on a pro forma basis from completion.
Further information in respect of the Transaction and Acquired Company
The Acquired Company is an Irish incorporated, CBI authorised and regulated MiFID entity. With the exception of two individuals, the staff currently supporting the Business are employed by a separate subsidiary of the Investec Group, with personnel costs recharged to the Acquired Company. As part of the Transaction, it is envisaged that 31 investment staff and 19 support staff will transfer to the Acquired Company at completion so that, along with the two individuals mentioned above, the Business will be supported by 52 individuals. Following the Transaction, by leveraging its existing efficient RoI platform, support services costs and recharges historically impacting the Acquired Company will not be incurred or are expected to be provided by Brewin Dolphin at a lower incremental cost. The Acquired Company also made a substantial non-recurring gain during the year ended 31 March 2018. As a result of these factors, the last reported statutory financial statements of the Acquired Company, being for the year ended 31 March 2018 as well as the years prior to this, do not reflect the costs and profits of the Business being acquired. The Acquired Company had gross assets of €45.1m at 31 March 2018, the level of which was substantially impacted by the proceeds relating to the non-recurring gain referred to above.
Clients of the Business are contracted with the Acquired Company and therefore client consent will not be required to bring into effect the overall Transaction. The Transaction is classified as a class two transaction for the purposes of the UK Listing Rules.
Proposed placing and use of proceeds
Brewin Dolphin also announces an intention to undertake a placing of new ordinary shares of the Company (the “Placing Shares”). The Placing Shares are intended to raise gross proceeds of c.£60m (before expenses). The placing is not conditional on the completion of the acquisition.
The Placing is being undertaken to maintain a strong Group regulatory capital level, thus providing the Group with continued financial flexibility to take advantage of further development opportunities. In-line with the Group’s stated strategy, it has committed to invest c.£70m in inorganic growth initiatives comprising ICIIL, the acquisition of the assets and staff of Epoch Wealth Management LLP and three other smaller recent acquisitions, as well as some strategic initiatives over the last 12 months. Assuming a 31 March 2019 acquisition and consolidation of ICIIL and Epoch and the £60m placing, the pro forma regulatory capital ratio would be c.196%.
Brewin Dolphin was advised by N M Rothschild & Sons Limited (“Rothschild & Co”) and Arthur Cox (Ireland) in relation to the Transaction. Liberum Capital Limited (“Liberum”) and RBC Europe Limited (“RBC”) are acting as joint corporate brokers to Brewin Dolphin. Travers Smith LLP are acting as legal advisers to Brewin Dolphin in relation to the placing.