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Rathbones confirms purchase of Speirs & Jeffrey for £104 million
14/06/2018 , News Team

Rathbones is to acquire Speirs & Jeffrey for an initial consideration of £104 million.

This will be paid for by £79 million cash, funded from a combination of internal cash resources and the proceeds of a proposed £60 million equity placing, and the issue of 1.0 million new Rathbones shares worth £25 million.

“Further contingent consideration of 0.6 million Rathbones shares will be payable dependent upon meeting certain administrative and procedural targets that enable the delivery of cost synergies,” the firm said in a statement. “Earn-out consideration and incentivisation awards of up to a maximum of a further 5.2 million shares will only be payable as operational and financial performance targets are delivered over the medium term.”

Rathbones had first said it was in exclusive talks about a possible take over of the Glasgow-based firm in April 2018. It has £6.7 billion in funds under management. Once the deal is completed this will increase Rathbones funds under management by 18 percent to £44.5 billion, the firm said.

Speirs & Jeffrey reported an underlying pre-tax profit of £10.6 million for the year to 10 May 2018 and a post-tax profit of £8.2 million. Revenue was £28 million.

This means the £104 million price tag is 12.6 times its post-tax profit and 1.6 percent of its funds under management.

"From the outset of our engagement, both teams have recognised how compatible they are in culture, investment philosophy and dedication to client service,” said Philip Howell, chief executive of Rathbones. “Speirs & Jeffrey represents an ideal strategic, professional and geographic fit with Rathbones and we look forward to working together both to develop our business in Scotland and deliver compelling returns for our shareholders. Key to our combined future success will be the principle of putting clients at the forefront of what we do, and we will remain committed to this as we welcome Speirs & Jeffrey into the group."

Speirs & Jeffrey's chief executive, Russell Crichton, will become the head of Rathbones' Scottish business. It employs 38 investment professionals and all its current directors and investment managers will join Rathbones. The existing Rathbones Glasgow team will combine with the Speirs & Jeffrey team.

Mr Crichton said he had “long admired Rathbones” and that the deal “offers the very best fit for our clients and our people”. He said: “With our client-facing staff members committed to and enthusiastic about the future, clients will continue to enjoy the high level of personal service which has become the hallmark of our firm, but with the additional significant benefits of Rathbones' scale, specialist expertise and deeper capabilities.”

The board of Rathbones outlined some of the effects it expects as a result of the deal. These include “underlying EPS accretion of at least eight percent and return on investment of approximately 13 percent in the third year following completion” and “run-rate cost synergies of approximately £6 million per annum within three years, principally from the streamlining of operations and infrastructure, with a total of  approximately £3 million costs to achieve these synergies over three years following completion”. It also said that there will be “meaningful revenue synergies to be achieved over time by leveraging the strength of Rathbones' brand and complementary product offering and aligning the Speirs & Jeffrey service proposition with that of Rathbones.”

It expects the “transaction to be marginally EPS accretive on an underlying basis in the first full year following the acquisition.”

RBC Capital Markets acted as financial adviser and joint corporate broker to Rathbones. Peel Hunt also acted as joint corporate broker.

Spencer House Partners acted as financial adviser to Speirs & Jeffrey.

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