Shares digital

Events are conspiring against private-client stockbrokers, will they respond with mergers and acquisitions?

by Simon Keane

Could we be heading for a summer of consolidation among the private client wealth managers? Their unit trust businesses, losing assets by the day as markets fall, also have to contend with growing redemptions as investors flee equities.

Their stockbroking operations are not doing much better either, as rising losses hit retail volumes. And, while perhaps more likely to ride out the storm, the difficult conditions can’t be doing much for the confidence of institutional clients.

Also the advisory arms of many of these businesses are suffering as new floats drop off while costs, already bloated following a four-year bull market, are being inflated by London Stock Exchange demands for better Aim oversight standards.

Given this conspiring against the sector it was perhaps unsurprising to learn in the weekend press that WH Ireland was being targeted. The report, followed on Monday by confirmation of a bid, fingered Blue Oar Securities as predator.

Perhaps sensing dissent among W H Ireland’s shareholders, Blue Oar took a stab at what is by no means the sector’s weakest link. Sitting on a £3 million cash pile and with strong asset backing in the form of its recently refurbished HQ in Manchester, WH Ireland can play hard to catch. But some of the broker’s investors are reportedly unhappy about the deal to bring in a consortium of new investors, led by Carphone Warehouse co-founder David Ross who, with the other three consortium members may end up owning 26% of the company.

WH Ireland’s strong asset backing – net assets per share of 114p – has helped insulate it from the dramatic re-rating elsewhere in the sector, and gave management the confidence to turn down two bids last year. But will other companies be so resilient? Possibly not.

We know the players are looking for deals. At March’s interims, Evolution’s chief executive Alex Snow – sitting on net cash of £123 million – said the company could make an acquisition in months.

So far we’ve had a few side deals – Ambrian Capital buying out Nabarro Wells after the latter’s reputation was shredded by a £250,000 London Stock Exchange fine – but we have yet to see serious consolidation.

In what could prove a bit of unkind timing for Rensburg Sheppards, its largest shareholder Investec (47% stake) is next month relieved of an obligation to keep holding the shares. (See page 67 Analysts in action.) Already looking vulnerable, its shares having halved in value over the past year, a bidder may come out of the woodwork, and the word is Investec would be open to an offer.