Rathbone Brothers is in advanced talks about a £2bn merger with Smith & Williamson in a bold move that would accelerate the consolidation of the wealth management sector.
Sky News has learnt that Rathbones, which has a market value of about £1.4bn, is close to agreeing the formal terms of a deal to combine with S&W in an all-share merger.
The alliance will attribute a valuation of close to £600m to S&W, a market source said this weekend, and will involve issuing Rathbones shares to its target’s investors.
A deal is expected to be announced within weeks, according to insiders, although they warned that it could be delayed.
If completed, it would be among the City’s most significant transactions so far this year, coming at a time of shifting regulation for wealth managers and bringing together two companies employing roughly 3000 people in total.
Combining the two businesses would give Rathbones access to S&W’s network of specialist tax and financial advisers at a time when clients are seeking increasingly sophisticated services from wealth management firms.
The deal, which will be structured as a takeover by Rathbones, will hand shares in the combined group to hundreds of S&W employees, who own the majority of the company.
AGF, a Canadian investor, has held a 30% stake in S&W for 15 years but has accelerated efforts to seek an exit in recent months.
Plans for a flotation of the British company were put on hold amid growing market turmoil in 2007 as investors became jittery ahead of the banking crisis.
Rathbones provides investment and wealth management services for private clients, professional intermediaries and trustees, and manages roughly £32bn of clients’ money through Rathbone Investment Management.
Adding S&W’s asset management arm would create a funds powerhouse with well over £50bn under its stewardship, given that Rathbones managed more than £36bn in total at the end of June.
S&W manages more than £19bn for clients.
The merger would also bring the UK’s eighth-biggest accountancy firm into its ownership.
It was unclear this weekend whether Rathbones would seek to retain the division of S&W which acts as an adviser to companies listed on London’s junior stock market, AIM.
Rathbones’ swoop on S&W will follow moves by rivals such as Brewin Dolphin to broaden their offering to clients and comes in the wake of stellar growth at companies including Hargreaves Lansdown.
Established in Liverpool in 1742, one source said this weekend that a takeover of S&W would rank among the most significant acquisitions in its long history.
Rathbone Brothers plc, which is in the FTSE-250, is run by Philip Howell, its chief executive.
The company is in the middle of a five-year strategic plan, targeting £40bn of assets under management by the end of next year.
Like other wealth managers, Rathbones is having to contend with the requirements of new legislation known as Mifid-II, which is paving the way for far-reaching changes to the way the industry operates.
S&W, which is being advised on the talks by Evercore, and Rathbones, which is being advised by JP Morgan and Royal Bank of Canada, both declined to comment.