Analysts are anticipating yet more consolidation in the asset management industry after Rathbone Brothers confirmed it was in merger talks with Smith & Williamson.
Rathbones’ share price remained flat today after it confirmed to the stock market that it is in exclusive talks with its rival over a potential £2bn merger.
News of the talks has emerged shortly after Aberdeen Asset Management and Standard Life completed their merger. Prior to that deal, Henderson Group and Janus Capital completed a tie-up.
The industry consolidation has been linked to the need for fund managers to grow their scale to be prepared for the rise of passive investment.
“The news of a potential merger between Rathbones and Smith & Williamson is the latest evidence that we are in a period of consolidation in the asset management industry,” said Ryan Hughes, head of fund selection at AJ Bell.
“Both of these business have remained at the periphery of the large asset managers and struggled to gain major traction, with many of their strategies remaining sub-scale.”
He added: “While there may be wider benefits from these two businesses coming together given that they do much more than just asset management, the ability to build greater scale has to be seen as a key opportunity as active managers look to take the fight back to the passive giants.”
Analysts covering Rathbones at N+1 Singer were supportive of the deal.
“We see the strategic rationale of a combination which would allow the group to pursue economies of scale,” they said in a note, adding that they would expect “material cost synergies” to follow.
Cantor Fitzgerald said in a note:
The cultural fit looks to be good with both overlap in activities (private client wealth management) plus complementarities such as tax affairs. We would assume that there would be cost synergies involved in this deal.
Liberum analysts said the deal would make sense, “particularly given Rathbones has been struggling to drive organic growth much beyond three per cent of opening funds under management in recent years”.