Financial Services Consolidation
- E*Trade Yesterday Morgan Stanley agreed to acquire E*trade for $13bn, which equates to c 3.7% of their $346bn of customer assets. Charging customers $6.95/trade the price equates to 4.8X Dec 20 forecast revenues. While that sounds a high price in fact AJ Bell is trading at 13.2X revenue and Hargreaves Lansdown trades at 15.4X revenue.
- US There seems to be some tectonic plates moving in the US where last year Ameritrade and Charles Schwab introduced free dealing which resulted in the $26bn merger of the two in November to create a monster with $5trn of customer assets. Of course under Mifid 2 free dealing wouldn’t be allowed so Robin Hood , which pioneered free dealing, has announced it plans to enter the UK market haven’t yet unveiled how they will do that.
- UK Meanwhile back in London Interactive Investor acquired Share PLC last week for 2.8X revenue. ii’s valuation was £675m as a private company which equates to 9.3X the Dec 18 revenues filed at companies house. ADVFN, which is struggling to grow and is barely profitable trades at 0.5X revenue.
- Conclusion It seems the battle for ownership of the retail investor is in full swing, while at the same time the product manufacturers are also consolidating (Jupiter/Merian, Franklin Templeton/Legg Mason etc). Ultimately we will have a land dominated by large low cost product providers as the retail investor takes control of their investments. Wealth Managers ( who were called “stockbrokers” in my youth) risk being caught in the middle unless they can differentiate or scale. I suspect we will have a lot more wealth manager consolidation yet to come.
- Valuations Impax Asset Management and Gresham House which are differentiated trade at 30X PE and 25X respectively, a valuation I don’t ever recall being ascribed to fund managers before. M&G on the other hand trades at 6.6X PE. The market is picking its winners and losers, but the losers are likely to fall prey to consolidation. Next month Invested, trading on a PE of 7.5X demerges its asset management business. While the battle for control of wealth management may soon start. With the highly leveraged Permira backed Tilney having acquired Smith & Williamson and Warburg Pincus said to be running the slide rule over Quilter the catalysts are now coming into view.
Next Week
Results season gets going next week with results from:
- St James Place – Unstoppable PE 29X
- Provident Financial – Should confirm recovery PE 10X
- London Stock exchange – Its all about Refinitiv PE 42X
- Jupiter – Its all about Merian PE 14X
While FRP Advisory has confirmed its IPO for 6 March today valuing the company at £190m and raising £20m. Making 51% margins the valuation may throw the spotlight on Begbies.