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Brewin Dolphin has a ‘spring’ in its step again

Brewin Dolphin has a ‘spring’ in its step again

Brewin Dolphin’s acquisition of Duncan Lawrie Asset Management (DLAM) is a key moment in the firm’s 250-year history.

The national wealth firm, which traces its origins back to 1762, has built its business through a series of high profile acquisitions over the years and DLAM deal marks its first foray into the market since 2011.

Brewin, which itself has been the subject of bid speculation recently, has held fire on acquisitions lately, focusing instead on restructuring its business.

Finance director Andrew Westenberger, who has been with the business for four years, admits the takeover speculation surrounding Brewin has been met with ‘wry’ smiles internally.

‘Brewin is well known for making acquisitions and over the last three/four years we have focused on rationalising our business and brand,’ Westenberger told Wealth Manager.

‘This acquisition says we are back and in forward mode and we have a spring on our step. It says Brewin is a good place to work and look after clients.’

The deal will see Brewin pay £28 million for DLAM, comprising an initial payment of £25.5 million, followed by a further instalment (estimated to be around £2.5 million) to reflect the value of net assets of the business on completion. 

DLAM’s team of 11 investment managers and eight support staff are expected to join the firm.

It will be financed through Brewin's £171 million cash position, leaving it with plenty of ammunition to make more buys.

However, Westenberger said the company will not be blowing its hard work over the last few years on unnecessary buys.

‘We’ve earnt a lot of credential in terms of financial discipline, improving margins and balance sheet strength in the last few years and the last thing we’re going to do is squander this on acquisitions,’ he said.  ‘We won’t be buying anything at any price.’

Synergies

At 30 September DLAM had £735 million worth of assets under management, meaning Brewin is paying 3.8% of assets to secure the deal, which is expected to complete in the first half of next year. 

When compared to other deals this looks a bit pricey. The benchmark appears to be at 2.3%, with Schroders/Cazenove Capital, SJP/Rowan Dartington and Towry/Ashcourt Rowan all dealt this level. Meanwhile Rathbones paid 2.1% to purchase Jupiter’s wealth business.

 The transaction’s built-in synergies were a major factor behind Brewin paying this premium, in what Westenberger described as a ‘competitive’ process.

‘The synergies have already been realised. We have got all the benefit of a traditional asset management deal, while we don’t have to worry about the back office costs you typically get with corporate deals,’ he said.

‘The quality of this book drove us to secure this deal. We are getting the revenue and the relationships packaged up in a corporate deal.’

Brokers also see plenty of value in the deal and the market welcomed it, with Brewin shares up 2.3% at 296.9p at 11.20am.

Based on the nine months to September 2016, the annualised revenue of DLAM is expected to be in the region of £6.2 million, with the transaction adding £3.7 million to Brewin’s pretax profit. It will also lift the firm's assets under management above £36 billion. 

‘We find these transaction multiples not only reasonable, but from an earnings point of view, highly attractive,’ RBC analyst Peter Lenardos said.

‘[The acquisition] is an effective use of Brewin’s surplus capital and further indication that management is now firmly focused on growing the business [and] reinforces our positive thesis on Brewin, and we believe that investors at the current level are exposed to an attractive valuation, high dividend yield and growth.’

The deal also won praise from Maquarie.

‘This appears an accretive and synergistic transaction in view of the addition to earnings and the use of surplus cash to make the purchase. The multiples appear to be in line with the broader valuation of AUM within the sector,’ the broker noted.

‘It also signals Brewin Dolphin's determination to consider use of its financial resources to assist with growth of its topline, the management's main focus at this stage.’ 

 

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