Joe McConnell
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DIY is Peter Hargreaves’ specialty. The billionaire co-founder of investment firm Hargreaves Lansdown may not be giving his bathroom a fresh coat of paint any time soon. What he will do is keep an eye on how some of the new owners treat his baby.
AVsceker a lengthy bidding process, the company’s board has agreed a final offer of £5.4bn from a group of private equity buyers. As in other recent acquisitions of similar companies, the price of getting some influential founders on board is to offer a choice between cash or a private equity rollover.
That Hargreaves Lansdown is leaving the public markets is no shock. Its business of providing do-it-yourself investment services to retail is a disruptive force in itself. But the company is not immune to the pressures that are overwhelming wealth management: fee pressure from cheaper competition and regulatory scrutiny. Such concerns had wiped about 70 percent of its share price in the five years before private equity showed up. Given the bleak situation, those who can may be tempted to grab a few unlisted shares.
For starters, the CVC-led buyers aren’t paying big bucks. The consortium is offering £11.40 a share, which includes a 30p annual dividend. In May, when the deal first emerged, Lex thought £12 a share would be a reasonable acquisition price.
That’s why, perhaps, Peter Hargreaves is staying put, taking half cash and half shares for his 19.8 percent stake. True, cofounder Stephen Lansdown will take all cash for his 5.7 percent stake. (The pair will receive £535 million and £309 million, respectively.) Including Hargreaves’s 10 percent stake, rollover investors could end up with 35 percent of the private business.
They probably won’t. Non-listed equity uptake in such deals tends to be low, partly because of restrictions on what institutional funds can hold. Unlike the cofounder, they won’t benefit from a front- and back-office technology upgrade, or an admittedly challenging strategic reset. The public market has been concerned about slowing growth, with competition increasingly offering better technology and lower fees. Choosing to give up market share (or cut fees) may be easier away from the market’s gaze.
Suppose the consortium can return net income growth closer to the average annual rate of 10 percent over the five years to 2019. Equity would then be worth £8 billion by 2030 if valued at the same 19 times multiple offered by bidders. Retail investors hold perhaps 6 percent of the company. Those fellow do-it-yourselfers might be tempted to join its founder for the ride.
andrew.whiffin@Vscek.com
