Hargreaves Lansdown has accepted a US$6.9 billion takeover deal by private equity consortium Harp Bidco.
The group consists of CVC Private Equity Funds, Nordic Capital and Platinum Ivy B 2018, Abu Dhabi’s sovereign wealth fund.
The deal, for £11.40 per cash share, is final. It follows four months of negotiations, which began with a £9.85 per share offer. Shareholders have been given the option to invest their shares in the new company as rollover securities if they decide not to accept the cash offer.
This is the latest in a wave of consolidation across European asset managers, with BNP Paribas entering “exclusive negotiation” to acquire AXA Investment Managers earlier this month. Margin pressures, a shift to passive funds and a downturn in profits have encouraged a number of firms to consider merging with one another, industry experts have suggested.
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Christian Kent, a managing director in Houlihan Lokey’s fintech group, stated that “over time, we expect to see further consolidation among these firms, and with robust private equity backing, Hargreaves Lansdown could emerge as a pivotal player in this consolidation through M&A activities.”
In its offer, Bidco shared that it expects Hargreaves Lansdown to benefit from numerous tailwinds over the next 10 years, and commended its market position, brand awareness and ability to face competition and near-term headwinds.
The consortium also discussed its intention to implement a “substantial transformation” to provide UK retail investors “access to the tools, information and services required to make sound investment decisions, combined with a transparent approach and good value in line with consumer duty”.
The document adds that independent Hargreaves Lansdown board “notes the consortium’s history of investing in UK and European financial services businesses, including wealth management, and the expertise they bring to help develop Hargreaves Lansdown’s client proposition. The Independent Hargreaves Lansdown Board believes that this expertise has the potential to enable an accelerated transformation aligned with Hargreaves Lansdown’s strategy to transform the investing experience and create the best savings and investment platform for its clients.”
Leaving the London Stock Exchange, the company joins a number of firms turning to private markets. As private equity continues to represent an increasing portion of the pie, the pressure is on for public markets to claw back the custom of major players. Recent changes to listing rules aim to revitalise UK capital markets, with the Financial Conduct Authority bringing the country’s practices in line with international counterparts and seeking to ease difficulties related to listing in the UK.
Kent explained that Hargreaves Lansdown’s shift to private equity should not come as a shock. “The acquisition 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.
“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”.
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On the takeover announcement, Alison Platt, Hargreaves Lansdown chair, commented: “[The board] believes that the cash offer represents an attractive opportunity for Hargreaves Lansdown shareholders to realise an immediate and certain cash value for their investment at a level which may not be achievable until the execution of the strategy is delivered over the medium to longer term, and therefore intends to unanimously recommend Hargreaves Lansdown shareholders vote to approve it.”
Representatives from Bidco’s firms added: “Hargreaves Lansdown has built a strong, trusted brand, underpinned by high levels of customer loyalty and advocacy. As a consortium, we are aligned with management that, despite these strengths, the company now requires substantial investment in an extensive technology-led transformation to improve Hargreaves Lansdown’s proposition and resilience, and to drive the next phase of Hargreaves Lansdown’s growth and development.”
On where the company could go next, Kent suggested that “under private equity ownership, the platform will likely experience strategic and managerial changes, addressing the structural challenges it has faced in recent years.”
He continued: “One area of potential development is the integration of advisory services into Hargreaves Lansdown’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.”
Concluding its offer, Bidco stated: “We look forward to partnering with Hargreaves Lansdown’s management to accelerate its transformation plan – including investment in technology infrastructure, digital channels, and service enhancement – all with client value, service, speed of innovation, and Hargreaves Lansdown’s clear purpose at the core.”
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