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Why it makes 'financial sense' for Jupiter to sell its wealth arm

by Dylan Lobo on Jan 13, 2014 at 10:00

Why it makes 'financial sense' for Jupiter to sell its wealth arm

Brokers have got excited about the prospect of a special dividend from Jupiter on news it could sell its wealth business at a significant premium.    

According to the Sunday Times, an 'unsolicited' approach for the business prompted Jupiter to contemplate a sale with Rathbones, Quilter Cheviot, and Towry among those interested in mounting a bid. 

The asset management firm is said to have appointed advisers from investment bank Evercore to conduct a strategic review of the arm, with potential suitors believed to be prepared to pay as much as £50 million for the business.

Numis analyst David McCann estimates the business is worth between £27-34 million (excluding balance sheet capital) and reckons a firm with a wealth management focus would be more successful at growing the business.

He also points out that the three firms linked with a bid could extract modest back office cost synergies, which would allow them to pay a little more for the business.

'Thus on the face of it, a £50 million offer would appear to make financial sense for Jupiter to sell,' McCann said in a note to clients. 

'Moreover, we believe that this price could still allow modest value accretion for a trade buyer, since they would likely be able to extract modest back office cost synergies and perhaps more importantly would have the proper resource to allow this business to grow more quickly, given a core rather than non-core focus.'

McCann also highlights that Jupiter's 'historical conservatism' on acquisitions and its now 'healthy' balance sheet means there is a good chance the firm could return proceeds to shareholders through a special dividend. He believes this could be as high as 11p per share if the wealth arm is sold for £50 million.   

The news comes as Maarten SlendeBroek, who joined the group in September 2012, prepares to replace Edward Bonham Carter (pictured) as chief executive in March.

Jupiter’s private client business has been running since 1985. In 2008, the firm signalled its intent to grow the unit by hiring two separate wealth management teams from Singer & Friedlander and Bestinvest, which doubled its private client manager headcount.

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