The Boards and Management of Rathbones Group Plc and Investec PLC have announced that they have entered into a definitive agreement regarding an all-share combination of Rathbones with Investec Wealth & Investment Limited to create the UK’s leading discretionary wealth manager.
The Combination brings together two trusted and prestigious UK wealth management businesses with closely aligned cultures and operating models and a shared commitment to client-centric values and sustainable growth. The Combination represents a significant value creation opportunity for both Rathbones and Investec Group shareholders.
Under the terms of the Combination, new Rathbones shares will be issued in exchange for 100% of Investec W&I UK’s share capital. The Enlarged Rathbones Group will remain an independent premium-listed company operating under the Rathbones brand with Investec Group as a long-term, strategic shareholder. Following completion, Investec Group will have an economic interest in Rathbones’ enlarged share capital of 41.25% with Investec Group’s voting rights limited to 29.9% of Rathbones’ enlarged total voting rights. Existing Rathbones shareholders will have an economic interest of 58.75% and voting rights of 70.1%. The terms of the Combination imply an equity value of approximately £839 million for Investec W&I UK.
The Investec W&I UK transaction perimeter includes Investec Group’s wealth and investment businesses in the UK and Channel Islands but excludes Investec Bank (Switzerland) AG and Investec Wealth & Investment International (Pty) Ltd, both of which will remain wholly-owned subsidiaries of Investec Group.
The Combination constitutes a Class 1 acquisition for Rathbones for the purpose of the Listing Rules (“Listing Rules“) and is therefore subject to, among other things, shareholder and regulatory approvals.
Key highlights
The Boards of Rathbones and Investec Group believe that the Combination will unlock significant scale benefits through the creation of the UK’s leading discretionary wealth manager with approximately £100 billion of funds under management and administration (“FUMA”).
In particular, the Boards of Rathbones and Investec Group believe that the Combination will:
- enhance and enrich the client proposition across investment management, financial planning, fund management and banking services;
- create a leading multi-channel distribution capability across private clients, intermediaries and charities, through an expanded network in 23 locations across the UK and Channel Islands;
- attract and retain the best industry talent through a leading employee proposition;
- leverage Rathbones’ investment in technology and operating model to deliver an optimal client experience whilst improving operating efficiency across the larger combined business;
- deliver significant value creation through the strong fit between the two operating models, with target annual run-rate cash synergies of at least £60 million, driven primarily by cost savings as well as higher net interest income;
- generate attractive financial returns for Rathbones: (i) expected to be accretive to underlying EPS in the first full year following completion; (ii) targeting low-teens underlying EPS accretion in the third full year following completion; and (iii) targeting double-digit post-tax return on invested capital in the third full year following completion;
- support the Enlarged Rathbones Group in maintaining a resilient capital position through all-share consideration with earnings accretion underpinning its progressive dividend policy; and
- establish a long-term strategic partnership between Rathbones and Investec Group to leverage attractive collaboration opportunities.
Investec Group will become a strategic shareholder in the Enlarged Rathbones Group and, on completion, will enter into a relationship agreement. The relationship agreement will include customary arm’s length provisions as well as lock-up and standstill arrangements as described in the section below headed “Other Key Combination Terms”.
Benefits to Investec Group
The Combination also offers a number of strategic and financial benefits for Investec Group, including:
- re-affirming Investec Group’s commitment, in a capital-efficient manner, to the strategically attractive UK wealth management sector, where scale and technology are increasingly important to drive growth and value creation;
- establishing a long-term strategic partnership between the Enlarged Rathbones Group and Investec Group, which will enhance the client proposition across banking and wealth management services for both groups;
- increasing the contribution of capital-light, recurring earnings to Investec Group, with distributions to Investec Group supported by a progressive Enlarged Rathbones Group dividend policy; and
- creating sustainable value for Investec Group’s shareholders.
Financial Outlook for the Enlarged Rathbones Group
The benefits of the Combination reinforce Rathbones’ conviction in the attractive medium-term growth outlook for the business. In particular, the Enlarged Rathbones Group will:
- continue to target an underlying operating margin in the low 20s (%) in 2023 and return to the high 20s (%) in 2024 as outlined in the 31 December 2022 financial year results; and
- target an underlying operating margin of 30% or more in the medium-term, once the benefits of the Combination are realised.
Other Key Combination Terms
Transaction structure
Under the terms of the Combination, Rathbones will, in consideration for the transfer of the entire issued share capital of Investec W&I UK, issue to Investec Group at completion: (i) Rathbones ordinary voting shares representing 29.9% of Rathbones’ enlarged ordinary voting share capital; and (ii) Rathbones convertible non-voting ordinary shares, such that Investec Group will have an economic interest in the Enlarged Rathbones Group of 41.25% (together, the “Consideration Shares“).
The convertible non-voting ordinary shares will rank pari passu with the Rathbones ordinary shares save that they will not carry voting rights. At any time following completion, Investec Group may convert convertible non-voting ordinary shares into ordinary shares on a 1-for-1 basis provided that at no time shall Investec Group hold more than 29.9% of Rathbones’ enlarged voting rights. The convertible non-voting ordinary shares will not be listed and will be non-transferable.
The convertible non-voting ordinary shares are expected to qualify as common equity tier 1 capital when issued on completion (subject to regulatory approval).
Under the Listing Rules, the Combination represents a Class 1 acquisition for Rathbones (and so will require the approval of Rathbones shareholders) and a Class 2 disposal for Investec Group. The Combination is not subject to The City Code on Takeovers and Mergers (the “Takeover Code“).
Governance and Management
The Enlarged Rathbones Group will continue to be chaired by Clive Bannister with the executive leadership team, under Rathbones CEO Paul Stockton, bringing together an experienced leadership team from both businesses, including Investec W&I UK CEO Iain Hooley (subject to regulatory approval). A joint integration steering committee (the “Joint Integration Steering Committee“) will also be formed, comprising senior executives from both Rathbones and Investec Group, to oversee and support the business integration.
Under the terms of the Combination, two Investec Group representatives will join the Board of the Enlarged Rathbones Group as non-executive directors upon completion, reflecting Investec Group’s position as a significant, strategic shareholder. Investec Group will be entitled to nominate two non-executive directors for as long as it holds at least 20% of the issued share capital of the Enlarged Rathbones Group; and one non-executive director for as long as it holds at least 10% but less than 20% of the issued share capital of the Enlarged Rathbones Group. Investec Group intends the two non-executive directors to be Ciaran Whelan, Executive Director of Investec plc, plus one other, who Investec Group anticipates will be a current Investec plc non-executive director. Both appointments will be subject to the approval of Rathbones’ Nomination Committee and the necessary regulatory approvals.
The Enlarged Rathbones Group will remain in compliance with the UK Corporate Governance Code following completion.
Lock-up and Standstill
Subject to certain customary and other exceptions, Investec Group will be subject to a lock-up for the first two years following completion during which Investec Group will not be permitted to sell any Consideration Shares. In each of years three and four following completion, Investec Group will be entitled to sell one-third of the Consideration Shares which it owns. Any disposals of shares by Investec Group once released from lock-up will be subject to customary orderly market provisions. The lock-up arrangement will terminate on the fourth anniversary of completion.
A standstill restriction will also apply to Investec Group under which it will agree, among other matters, not to acquire shares in, or make an unsolicited takeover offer for, Rathbones for the period from signing to completion and up to the fifth anniversary of completion.
Steps to completion
The Combination is conditional, among other things, on:
- approval of the Combination by Rathbones’ shareholders (by ordinary resolution) at a general meeting (“General Meeting“) of Rathbones;
- the Financial Conduct Authority (“FCA“) and London Stock Exchange agreeing to admit the ordinary share element of the Consideration Shares to the premium listing segment of the Official List and to trading on the London Stock Exchange’s Main Market for listed securities;
- no material adverse change having occurred in respect of either Rathbones or Investec W&I UK;
- Competition and Markets Authority (“CMA“) confirming in response to a briefing note that it has no further questions or, alternatively, CMA approval; and
- relevant financial and other regulatory approvals and notifications being obtained, including in the UK, Jersey, Guernsey and South Africa.
The approval of Rathbones’ shareholders will be sought at the General Meeting which will be convened in Q2 2023. Completion is expected to occur in early Q4 2023 (subject to regulatory approvals).
Commenting on the Combination, Clive Bannister, Chair of Rathbones, said: “Bringing Rathbones together with Investec W&I UK will create the UK’s leading discretionary wealth manager with approximately £100 billion of funds under management and administration. This transaction not only presents a compelling strategic and financial rationale, but also accelerates Rathbones’ growth strategy. Operating at scale allows the group to offer an even more attractive proposition to clients and colleagues, supporting future growth and creating significant value for Rathbones’ shareholders. I look forward to Investec W&I UK colleagues joining the Enlarged Rathbones Group, and welcome Investec Group as a strategic shareholder. I am hugely excited about what the Combination can deliver.”
Commenting on the Combination, Fani Titi, Investec Group Chief Executive Officer, said: “The Combination of Investec W&I UK and Rathbones brings together two businesses which have a long-standing heritage in UK wealth management and closely aligned cultures. The strategic fit of the two businesses is compelling with complementary strengths and capabilities to enhance the overall proposition for clients. This will be supported by the strategic partnership which offers attractive growth and collaboration opportunities for both groups. The transaction represents a real step-change and long-term opportunity for our UK wealth strategy, underscores our commitment to the UK wealth management market and enhances our UK business as a whole.”
