In an attempt to gain market share in the UK wealth sector, an international consortium has agreed a buyout for Britain’s investing platform, Hargreaves Lansdown, for £5.4bn ($6.9bn).
According to Reuters, the acquisition is the most recent in a line of takeovers of British businesses, and it is the second-largest deal by value made by a London-listed company this year.
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It is backed by co-founders and major owners Peter Hargreaves and Stephen Lansdown, who started the company in 1981 and listed it in London in 2007.
The consortium, which includes Europe’s largest private equity company CVC Capital Partners, Abu Dhabi’s sovereign wealth fund, and Swedish private equity firm Nordic Capital, revealed that the £11.40 per share cash offer was definitive.
FTSE 100 listed Hargreaves Lansdown saw a 2% increase in shares to 11.02 pounds in early trading. Following the announcement of the takeover strategy in May, they had increased by almost 10%.
Based on calculations by Reuters, co-founder Lansdown intends to bank the remaining £535m pounds and reinvest half of his 19.8% interest in the private company. With this, Lansdown might earn £309m pounds.
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By GlobalDataUK wealth market competition intensifies with international financial groups and increased focus on wealth management by UK retail banks, insurers, and asset managers.
In addition to potential price reductions, the purchasers’ intentions to invest in Hargreaves Lansdown’s technological platform might strengthen the company’s competitive standing.
An alternative to the cash offer for Hargreaves Lansdown investors is the opportunity to rollover their shares into a stake in the private business. Moreover, an unlisted company’s shares are not available to all investors, which may exclude some current shareholders.
Hargreaves Lansdown reported an annual adjusted pretax profit of £456m, beating analysts’ estimate, and a 13% decrease in net new business.
Christian Kent, a managing director of Houlihan Lokey’s FinTech Group, observed on the private equity takeover.
What impact will the potential acquisition have in terms of market and industry dynamics?
CK: “The acquisition of Hargreaves Lansdown by private equity underscores the valuation disconnect for wealth managers between public and private markets. With over 25 private equity-backed wealth management firms in the UK, this move isn’t surprising. Over time, we expect to see further consolidation among these firms, and with robust private equity backing, HL could emerge as a pivotal player in this consolidation through M&A activities.”
How might the management and strategic direction of Hargreaves Lansdown change under private equity ownership, and what potential value could this bring?
CK: “Under private equity ownership, the platform will likely experience strategic and managerial changes, addressing the structural challenges it has faced in recent years. That said, Hargreaves Lansdown possesses substantial brand value with nearly 2 million active customers and the private equity business model, with a longer-term focus and strategic expertise, could help HL drive necessary changes outside the constraints of the quarterly earnings cycle.
One area of potential development is the integration of advisory services into HL’s business model, aligning it more closely with other private equity-backed strategies in the sector. I’m confident there will also be a focus on improving technology and automation to facilitate a more competitive pricing structure for clients.”
How might the deal influence future PE activity in the wealth and asset management space? May it have a ripple effect?
CK: “The listed market has fallen out of love with UK wealth managers and we have seen one way traffic in terms of public market exits, including AFH, Harwood, Mattioli Woods, Nucleus, Curtis Banks, IFG, Charles Stanley and Brewin Dolphin. It wouldn’t surprise me if others follow in the future”.
