By Iain Gilbert
Date: Thursday 21 Jun 2018
LONDON (ShareCast) - (Sharecast News) - Analysts at Canaccord Genuity believe Rathbone Brothers' recent acquisition of investment manager Speirs and Jeffrey was a "timely and important one" for the firm.
Coming as organic growth through traditional routes had become harder to come by and various growth initiatives put in to play were still at a relatively early stage, the broker highlighted several key points of the deal on Thursday.
Canaccord said that Rathbones would benefit from an increased scale, with combined funds under management of more than £44bn and potential revenue synergies given the conversion of advisory to discretionary funds.
"We believe it is noteworthy that the cultural and client fit of the acquisition were among the most important factors cited by management. Rathbones has a good track record of acquiring firms, fully integrating them and retaining the majority of acquired funds," Canaccord's analysts said.
Alongside these factors, Canaccord believes the acquisition also ticks all the right quantitative boxes.
"We believe the deal should deliver EPS accretion even if haircuts are taken to our base case assumptions of fund retention, revenue synergies or cost synergies. The structure of the consideration, in particular, the significant share-based earn-out component, aligns the vendors with Rathbones' shareholders from a value creation perspective and thus de-risks the acquisition," the broker said.
At this stage, Canaccord did not update its forecasts to reflect the impact of the acquisition. However, it adjusted its valuation to capture the estimated value of the deal.
Canaccord arrived at a new 2,830p target price for Rathbones, up from its previous 2,705p mark and retained its 'buy' rating.