Retail bank NatWest (NWG) has announced a deal to buy wealth management firm Evelyn Partners from its private equity owners. Alongside the ‘transformative’ deal, it will buy back another £750 million worth of shares.
| Share price: 628p (-4.8%) | PE: 10.2x |
| Market Cap: £52bn | Yield:4.9% |
A ‘compelling’ deal
NatWest is paying £2.7 billion for Evelyn Partners, which oversees £69 billion of assets and owns the D2C platform BestInvest. NatWest’s own PBWM (private banking and wealth management) business oversees £59 billion of assets.
By combining Evelyn Partners with its existing business, NatWest will become a major player in the UK market. Going forward, PBWM will represent 20% of customer assets and liabilities and fee income will increase by 20% or more.
In time, NatWest hopes to expand its saving and investment offering across its entire customer base of 20 million people. The deal ‘creates a unique opportunity to provide financial planning, savings and investment services to more families and people across the UK’, said NatWest CEO Paul Thwaite.
The deal also represents ‘a strategically and financially compelling use of capital, strengthening returns in a high‑growth segment,’ added Thwaite.
More buybacks
The bank expects the combination with Evelyn Partners to create annual run-rate synergies of around £100 million. That would represent around 10% of the combined cost base of the enlarged PBWM business.
NatWest also expects to deliver ‘significant revenue synergies’ by integrating Evelyn Partners’ products into its mass customer offering. Assuming the deal is accretive to growth and returns in year one, the benefits could exceed those of a buyback.
Therefore, the bank is pressing ahead with a £750 million repurchase, and will announce more with its H1 results.
The negative reaction to today’s news is typical of the short-sighted attitude of many UK investors. The Evelyn Partners deal is long-term positive, but people are unhappy with the price and would rather have more buybacks.
Yet as CEO Paul Thwaite says, the benefits of saving and investing are increasingly part of the national conversation. Therefore, what better time to team up with an experienced wealth management firm, especially is the deal is value-accretive?
All we would say is cost synergies are one thing, generating revenue synergies is another thing entirely. Many firms do deals assuming they can cross-sell to their existing customers, but few can actually pull it off.
Read the press release here: https://investors.natwestgroup.com/
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