City paints old-fashioned value on silvered takeover tacticians
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The City may be guilty of many horrors — from downright sexism to all manner of offences to political correctness. But it puts an old-fashioned value on experience.
About 130 years ago, the American artist Whistler, having been accused by John Ruskin of being a coxcomb for asking 200 guineas for flinging a pot of paint in the public’s face, replied it was the right price “for the knowledge I have gained in the work of a lifetime”.
Now US M&A adviser Perella Weinberg Partners is preparing to pay for the knowledge gained in the working lifetime of Alex Wilmot-Sitwell — the 57-year-old former investment banking head of Bank of America Merrill Lynch and UBS. The silver-haired Mr Wilmot-Sitwell and two other M&A veterans, whose connections stretch beyond the four corners of the Square Mile, will join PWP in the UK this year.
PWP evidently hopes to rival the success of Centerview, headed in the UK by Robin Budenberg, a former head of UK Financial Investments as well as SG Warburg and UBS, and of Robey Warshaw, founded by the takeover tacticians Sir Simon Robey, Simon Warshaw and Philip Apostolides.
Both boutiques featured at the top of Dealogic’s UK M&A dealmaking tables last year and are manned by old lags who remember the Big Bang and the big City names of the last century. That includes one Peter Wilmot-Sitwell, father of Alex and former chairman of SG Warburg, which was swallowed up by UBS in the 1990s.
The attraction to rainmakers of moving from a bank to a boutique are manifold. The barriers to setting up advisory boutiques are relatively low, the office politics are easier to manage and the rewards can be eye-watering.
Robey Warshaw, which worked on some of the UK’s largest deals in recent years, including the takeovers of SABMiller and Arm Holdings, paid out a profit pool of £63m to its 16-or-so staff last year. Its highest paid founder took home nearly £40m. That seems more than fair for the knowledge gained in the work of a lifetime. In fact, more than enough to retire on.
Nothing is certain in life except that the grim reaper gathers souls and the Inland Revenue gathers taxes. But it is almost as certain that Rathbone Brothers, the 275-year-old private client investment manager, will gather assets. Or try to.
Rathbones, which now manages close to £40bn of private investors money, is in talks to buy Speirs & Jeffrey, a little known Glasgow-based manager of £5.5bn in private client portfolios. Last year, Rathbones tried and failed to buy rival Smith & Williamson for £600m. Four years ago, Rathbones took on Jupiter’s private client portfolios and a part of Tilney, then owned by Deutsche Asset Management. It paid about £14m for £3bn of assets.
The price mooted for Speirs is £200m. That is about 3.6 per cent of funds or 28 times Speirs’ earnings of £9m pre-tax last year. Speirs’ profit margins are a tad higher than Rathbone’s at 35 per cent but the price tag is still too rich. Rathbone is valued at about 2.5 per cent of assets, which is a considerable premium to peers such as Brewin Dolphin.
Private clients are less flighty than institutions, and they hold fast to their investment managers. But to justify stumping up £200m, Rathbone would have to be very sure of the synergies it can extract from amalgamating back offices and putting Speirs on to its IT platform. Shore Capital’s Paul McGinnis says if Rathbone hopes “to generate a return capable of value creation over any reasonable hurdle rate” the savings from putting the two businesses together would need “to be at least double Speirs’ current level of profitability”. Unlike death and taxes, that is far from certain.
Dodge the dodgems
Here’s a thing. New car sales drop a worse than expected 16 per cent in March and 12 per cent in the year to date, and shares in car dealerships — Pendragon, Vertu and Lookers — rise.
Yet dark clouds are massing over the sector: interest rates are expected to rise, consumer confidence looks a tad shaky, and regulators are showing an interest in personal contract plans or PCPs which have been such a boon to dealers in recent years. That is aside from the uncertainty of Brexit and the impact on car manufacturers, with their tight hold on dealership partners.
The dealers have studiously focused on more stable and higher-margin revenues from after-sales services and used cars — a market about three times the size of new cars — while establishing themselves online. That will help to offset the money spent on their acres of flashy forecourts. But Pendragon’s profit warning last October, due to reduced new car sales revenues and gross margins, was ominous.
Shares in the dealers, at well under 10 times earnings, are hardly expensive. But that is for a very good reason.