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Brooks Macdonald Grp (BRK)


Wednesday 24 June, 2020

Brooks Macdonald Grp


RNS Number : 8606Q
Brooks Macdonald Group PLC
24 June 2020


24 June 2020

Brooks Macdonald Group PLC

Acquisition of Lloyds Bank International's Channel Islands wealth management and funds business

Another significant step forward in achieving our growth ambitions

Brooks Macdonald Group plc ("Brooks Macdonald", the "Group" or the "Company") is pleased to announce that its wholly owned subsidiary Brooks Macdonald Asset Management (International) Limited ("Brooks Macdonald International", or "International") has entered into a binding agreement to acquire the Channel Islands wealth management and funds business of Lloyds Bank International Limited (the "Acquisition", the "Transaction").


The total consideration is expected to be up to £9.63 million, including £2.5 million of regulatory capital, with initial consideration being up to £9.30 million.  The full consideration will be paid in cash from Brooks Macdonald's existing financial resources.  A contingent cash consideration of up to £0.33 million will be payable two years after completion depending upon the acquired business meeting certain pre-agreed performance targets relating to the retention of portfolio clients.  Completion is expected to take place in the fourth quarter of 2020 subject to regulatory approval.


The Acquisition consists of 100 per cent of the share capital of Lloyds Investment Fund Managers Limited ("LIFML") and the investment management assets and investment management client relationships of the discretionary investment management clients of Lloyds Bank International Limited ("Lloyds Bank International", "LBIL"), which is a subsidiary of Lloyds Bank Corporate Markets plc ("LBCM").  LBIL and LIFML are both 100 per cent owned subsidiaries of Lloyds Holdings Jersey Limited ("LHJL") whose ultimate parent is Lloyds Banking Group plc ("LBG" or "Lloyds").


The Group is also pleased to announce that it has reached agreement in principle with LBCM on a reciprocal arrangement whereby the two parties will introduce relevant services to each other's clients.




· LBIL's wealth management and offshore funds business has a high quality investment offering with an affluent and high net worth client base and strong intermediary relationships, with Funds under Management ("FUM") of £1.0 billion1 all managed on a discretionary basis, comprising:

An investment management business with c.£500 million in FUM serving c.1,200 portfolio clients

A funds business with c.£500 million in FUM, predominantly distributed through c.50 independent financial advisers, and serving c.10,500 mainly personal clients.

· The Acquisition has a compelling strategic rationale for the Group, in line with its strategy to consider selective high quality inorganic opportunities, alongside its continuing focus on organic growth from intermediary relationships.

· It is a compelling move for Brooks Macdonald International which:

Further transforms the International business, building on its reinvigoration under Andrew Shepherd and his management team

Increases International FUM by up to two-thirds to c.£2.5 billion2, and brings up to c.1,200 private clients

Adds multi-asset and fixed income fund capability, augmenting International's proposition to clients, advisers and trustees

Strengthens the Group's international intermediary distribution reach.

· Following completion, the combined business will be based at International's office in Jersey and the businesses being acquired will be rebranded as Brooks Macdonald International.  A number of current LBIL staff members will be offered roles in the combined business to expand and strengthen International's capability, ensuring continuity of customer service.

· The Group intends to operate the business on a different model to that currently employed by Lloyds.  Brooks Macdonald will outsource fund administration and leverage its existing investment management strengths to bring that activity in-house.  The Company expects this change to the operating model to drive a material uplift in profitability.

· Brooks Macdonald International and LBIL expect to build on the relationship developed through the Transaction to create a deeper ongoing business partnership:

Brooks Macdonald International will introduce clients where appropriate to Lloyds Bank International's banking services and LBIL will reciprocate, introducing banking clients to the Company's international investment management and financial planning services

International and LBIL will explore further opportunities for co-operation in product and service development.

· Material financial benefits for the Group are expected from the Acquisition:

Increase in the Group's pro forma funds under management by up to c.8 per cent to over £13 billion2

Expected to be accretive to underlying EPS in the year of acquisition (12 months ending 30 June 2021), with full year accretion of an estimated 8-10 per cent in the Group's first financial year following completion (12 months ending 30 June 2022), based on achieving expected levels of client transfer, and before any potential revenue synergies

Consideration representing an estimated post restructuring P/E multiple of 4.5 times in the first full year following completion, on a pro forma basis

Acquisition funded from existing cash resources.

1 As at 31 May 2020.  All Lloyds FUM figures in this announcement are as at 31 May 2020 and are based on unaudited management accounts.  All other Lloyds financial figures in this announcement relate to the year ended 31 December 2019 and are based on published audited accounts for LIFML and unaudited management accounts for the LBIL portfolio clients.

2 Based on Brooks Macdonald funds under management figures as of 31 March 2020

Caroline Connellan, CEO of Brooks Macdonald, commented:

"Since his appointment as CEO of International last April, Andrew Shepherd and his team have led the reinvigoration of the business, delivering for clients, advisers and trustees.  The acquisition of Lloyds' offshore wealth and funds business adds to this transformation, bringing greater scale, new capabilities and expanded distribution reach.  As well as the good strategic fit, our discussions with Lloyds Bank International have shown we have similar cultures with a shared strong focus on clients and intermediaries.  This acquisition, the second for Brooks Macdonald in this financial year, is a further step forward in achieving our growth ambitions, complementing our organic strategy, creating value for shareholders and bringing benefits for clients and intermediaries."

Andrew Shepherd, CEO of Brooks Macdonald International, added:

"We are delighted to have agreed this acquisition which represents a major move forward for the International business.  It increases International FUM materially, brings a high quality discretionary portfolio client base and adds a strong multi-asset and fixed income fund range to our proposition to clients, advisers and trustees.  It also brings additional intermediary relationships, increasing our distribution reach.  I am particularly pleased that the strong relationship we have built with the Lloyds  Bank International management team means that we are putting in place a partnership agreement for cross-referral of clients with a shared commitment to explore other ways for the businesses to co-operate."

Alasdair Gardner, Islands Director of Lloyds Bank International, commented:

"When we decided to sell our Islands wealth and funds business, it was of paramount importance that we found a company with a similar culture to our own and with a strong client focus at its heart, such as Brooks Macdonald.  This is particularly important as most of the discretionary portfolio clients are also banking clients of Lloyds Bank International. We wanted to be confident that our clients and intermediary supporters would continue to receive the highest levels of service and an owner that they would be happy to work with in the future.  Throughout our discussions, we have been impressed by the strong client focus and growth aspirations of the Brooks Macdonald International management team and we are very pleased to have reached this agreement with them."

Conference call and investor presentation details

There will be a presentation for analysts and investors at 9:00am today via webcast and conference call.  For details please contact MHP Communications on +44 (0)20 3128 8734 or [email protected]

Presentation slides will be available from 7:00 a.m. today by going to the Investor Relations section of Brooks Macdonald's website using the following link:  

Peel Hunt LLP is corporate broker to Brooks Macdonald.  Ogier (Jersey) LLP is acting as legal adviser to Brooks Macdonald in relation to the Transaction.  Carey Olsen Jersey LLP is acting as legal adviser to LBG and its subsidiaries.



For the purposes of MAR and Article 2 of Commission Implementing Regulation (EU) 2016/1055, this Announcement is being made on behalf of the Company by Phil Naylor, Company Secretary.



Enquiries to:

Brooks Macdonald Group plc

Caroline Connellan, CEO

Ben Thorpe, Group Finance Director

Andrew Shepherd, CEO International

020 7659 3492


01534 715521

Peel Hunt LLP (Nominated Adviser and Broker)

James Britton / Rishi Shah / John Welch


020 7418 8900

MHP Communications (PR adviser to Brooks Macdonald Group)

Reg Hoare / Simon Hockridge / Charlie Barker


020 3128 8734

Crystal Public Relations Limited (PR adviser to Brooks Macdonald International)

Adam Riddell

01534 639505

Notes to editors

Brooks Macdonald Group plc, through its various subsidiaries, provides leading investment management services in the UK and internationally. The Group, which was founded in 1991 and began trading on AIM in 2005, had Discretionary Funds under Management of £12.2 billion as at 31 March 2020.

Brooks Macdonald offers a range of investment management services to private high net worth individuals, pension funds, institutions, charities and trusts. The Group also provides financial planning as well as offshore investment management and acts as fund manager to two regulated OEICs (the IFSL Brooks Macdonald Fund and the SVS Cornelian Investment Funds) providing a range of risk-managed multi-asset funds and a specialised absolute return fund.

The Group has twelve offices across the UK and the Channel Islands including London, East Anglia, Hampshire, Leamington Spa, Leeds, Manchester, Taunton, Tunbridge Wells, Scotland, Wales, Jersey and Guernsey.

LEI: 213800WRDF8LB8MIEX37 / @BrooksMacdonald



Brooks Macdonald is a successful investment management and financial planning company with over £12bn of FUM, focussed on providing high quality investment solutions to Independent Financial Advisers ("IFAs") and other professional advisers looking to outsource their investment management activity, which continues to be one of the fastest growing segments of the UK asset management industry.  Having strengthened its senior management team and upgraded its risk management and operational framework over recent years, the Company is now well-positioned to undertake high quality inorganic growth transactions alongside its continuing focus on organic growth.  

Accordingly, in November 2019, the Group acquired Cornelian Asset Managers Group Limited, the Edinburgh based independent wealth and asset manager, bringing a strong client base, additional multi-asset capability and distribution strength into the business.  Today's acquisition of Lloyds' offshore wealth management and funds business brings a strong client base, an attractive funds proposition and good relationships with its network of advisers, all of which makes it a compelling strategic fit for Brooks Macdonald.

Overview of the Transaction

Brooks Macdonald has agreed to acquire 100 per cent of the issued share capital of LIFML, which is intended to be renamed Brooks Macdonald International Fund Managers Limited, and the investment management assets and investment management client relationships of the discretionary investment management clients of LBIL.  The Acquisition is subject to certain regulatory approvals and completion is expected to take place in the fourth quarter of 2020.

The business has £1.0 billion of funds under management (as at 31 May 2020), all managed on a discretionary basis.  The investment offering includes segregated discretionary portfolios, run on one of a controlled range of portfolio models, and a range of seven multi-asset and fixed income funds.  It operates a centralised investment team with distribution and servicing separated into two segments:

· Discretionary portfolios: c.1,200 portfolio clients advised by LBIL's in-house regulated financial advisers, typically also LBIL banking clients

· Funds: c.50 IFAs which are the principal source of the c.10,500 Funds clients.

Strategic rationale

The Group see a strong strategic rationale for the proposed Transaction, meeting its acquisition criteria:

· A high quality business allowing a smooth integration with a restructured business model and rapid realisation of economic benefits;

· A compelling strategic and cultural fit with Brooks Macdonald: complementary business model and strong new intermediary relationships, which we expect to deliver material revenue synergies, as well as being transformative for our International business, increasing FUM by up to two-thirds and giving it material scale; and

· Value-adding: affordable from cash and delivering strong earnings accretion.

Integration and growth opportunities

The Group is confident the Acquisition will deliver material levels of economic benefits, driving EPS accretion immediately upon completion, with a full year impact of an estimated underlying3 EPS accretion of c.8-10 per cent in the year ending 30 June 2022, based on achieving expected levels of client transfer.  Further, there is potential for material revenue synergies that will contribute to medium- and longer-term growth, although these were not taken into account in the Group's valuation.

The Group plans to integrate the LBIL discretionary investment management clients into its own investment management activities.  For the Funds business, the Group intends to restructure the business model, leveraging the work the Group has done to improve its own processes and operational framework, as well as the experience from the recent successful Cornelian integration.  For example, whereas Lloyds currently outsources investment management of both the Portfolio Clients discretionary portfolios and the funds, Brooks Macdonald will take over the investment management itself.  Conversely, while Lloyds conducts major elements of the fund administration itself, the Group will outsource much of this activity.  Both these changes will be made pre-completion and the Group expects them to drive a material uplift in profitability for the business.

The Group is pleased to have reached in principle agreement for JTC Group ( to perform the role of Fund Administrator and Registrar (subject to regulatory approvals).  The Group is also pleased to announce that Apex Financial Services (Corporate) Limited have agreed to continue as Custodian.

The Group expects one-off costs necessary to complete the integration to be up to £2 million, which we will exclude from reported underlying3 profit.  A full year's worth of the rapidly realised benefits is expected to be delivered in the Group's first full financial year following completion (12 months ending 30 June 2022) with most benefits arising from the pre-completion business model restructuring.  The Group's confidence in the delivery and timing of these benefits is driven both by the scope for business model restructuring and by making highly conservative assumptions.

Over and above the potential short-term economic benefits, both segments could present material medium- and longer-term revenue synergy benefits for Brooks Macdonald International:

· First, International already has a restricted advice financial planning team, focused on the Channel Islands market, who have been a major source of new business over the last 1-2 years.  Bringing in Lloyds' 1,200 clients will give this business material additional scale and position it strongly to compete for further business.

· Second, International has grown its IFA business considerably and has been exploring how it could add a fund product to its proposition for clients and intermediaries.  The addition of Lloyds' funds and adviser network will give material opportunities both to take the fund range to International's existing clients, advisers and trustees and to leverage the extended distribution reach.

Further, LBCM branches will be retaining the 1,200 private clients as banking clients and have agreed in principle to a cross referral arrangement with International going forward.  The Group has not quantified potential benefits from this, but believes it represents a material and accretive opportunity over time.

3 Underlying figures represent the results for the Group's continuing activities and exclude: amortisation and impairment of intangibles including goodwill; changes in fair value; restructuring charges; one-off transaction costs; and other exceptional items.  A full reconciliation is given in interim and final results.


Transaction terms

Under the terms of the Acquisition, the total consideration will comprise up to £9.63 million in cash, comprising payments for intangible assets (including goodwill) and required regulatory capital (split up to £7.13 million for intangible assets and £2.5 million for regulatory and working capital).

The upfront consideration payable at completion for intangibles including goodwill - up to £6.8 million - will consist entirely of cash.  Further contingent consideration of up to £0.33 million, payable in cash, will be payable upon the business meeting certain pre-agreed performance targets relating to the retention of portfolio clients.  Performance against criteria will be fully determined by the second anniversary of completion.

The total upfront payment of £9.30 million is split £4.65 million for the share capital of LIFML and up to £4.65 million for the portfolio client assets and relationships.  The amount the Group actually pays for the portfolio client assets and relationships will be proportional to the value of those clients transferring.

Further, the total upfront payment of £9.30 million is dependent on total FUM at completion remaining above £0.875 billion.  If total FUM falls below £0.875 billion at completion, the upfront consideration will be reduced by £1 million.

Appendix - 3-year financial results, illustrative full year

Figures in Table 1 below are taken from audited accounts for LIFML, and unaudited management accounts for the LBIL portfolio clients, with adjustments made for certain discontinued businesses.  Note Lloyds' financial year end is 31 December and the figures shown here reflect that, rather than Brooks Macdonald's financial year end of 30 June.

Table 1




FUM (£ billion)




Gross income (£ million)




Net income (£ million)




PBT (£ million)





Note that the balance sheet Total Assets of LIFML were £9.1 million at 31 December 2019.


Figures in Table 2 below are an illustrative representation of the Group's expectation for the acquired business in a full financial year.

Table 2

Illustrative full year

FUM (£ billion)


Revenue (£ million)


PBT (£ million)





The financial illustrations set out in this announcement are illustrative only, representing reasonable assumptions, based on the financial information available at the time of the announcement.  However, all financial information provided is subject to change and these illustrations may be different from the actual financial position.  No reliance should be placed on the illustrations set out in this announcement.


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