Rathbones' swoop to ramp up City dealmaking push

Rathbones’ swoop for rival Smith & Williamson ratcheted up the pressure on rivals on Monday as the City braced itself for more deals in the funds sector.

The FTSE 250 wealth firm, led by boss Philip Howell, confirmed it was in talks with the privately owned group today about an all-share merger.

The possible takeover would value Smith & Williamson at up to £600 million, giving the combined group a value of around £2 billion.

City investors gave the idea the thumbs up with shares rising nearly 2%, gaining 54.14p to 2831p.

Evening Standard revealed in May that Smith & Williamson’s owners — its employees and Canadian investor AGF, which owns 30% — were considering a sale. Shares in the sector rallied on the news.

The deal could help boost Smith & Williamson’s sluggish profit margins, which are around half of Rathbones’ margin of around 30%, via cost savings.

However Rathbones’ sudden move, which would propel assets to £56 billion, will put scrutiny on listed rivals such as Brewin Dolphin, Charles Stanley, Brooks Macdonald, Walker Crips and Mattioli Woods and their M&A plans.

“The question is what happens to all of these,” said one City watcher. “They either need to make a bold move or they’re next.”

A whirlwind of tighter regulation, such as Mifid II, the RDR clampdown on financial advisers and a watchdog probe into fund management, and eroding profit margins means City watchers expect more deals to come.

“We’ve seen quite a lot of activity over the past two to three years and I certainly expect that to continue,” Liberum analyst Justin Bates said.

“Increased competition and regulation means people are seeking to protect their profit margins and M&A is one way of doing that.”

Pakenham Partners founder Kevin Pakenham, who advises on wealth manager mergers, said: “You either grow or you merge. You can’t stand still. We’re going to see more consolidation.”