Hargreaves Lansdown Rejects £4.7B Bid, Shares Surge 18%

Key Takeaway

• Hargreaves Lansdown rejected a £4.7 billion ($6 billion) takeover bid, causing shares to surge 18% to 1,151 pence.
• The bid highlights valuation disconnects in the UK wealth management sector, boosting shares of peers like AJ Bell (+13%) and St James’s Place (+6%).
• The UK wealth management market remains attractive for M&A due to undervaluation and potential for consolidation-driven cost savings.

Hargreaves Lansdown Rejects Takeover Offer

Hargreaves Lansdown Plc, the UK's largest platform for retail investors, has turned down a £4.7 billion ($6 billion) takeover bid from a consortium of private equity firms, including CVC Capital Partners and a subsidiary of the Abu Dhabi Investment Authority. The offer, made on April 26, was priced at 985 pence ($12.55) per share, representing a 30% premium at the time. However, the board of Hargreaves Lansdown unanimously rejected the proposal, stating that it "substantially undervalues" the firm and its future prospects. Following the announcement, the company's shares surged as much as 18% to 1,151 pence on Thursday.

Stephen Lansdown, the investment platform’s second-largest individual shareholder, commented, “It’s woken the stock up. It’s interesting to see that third parties are now seeing the value in Hargreaves Lansdown and looking to take advantage of it.” The consortium, which also includes Nordic Capital and Platinum Ivy, must declare by 5 p.m. on June 19 whether it intends to make a further offer. The board emphasized its focus on executing its strategy and advised shareholders to take no action. "The board is focused on executing its strategy and looks forward to updating the market at the full year results on 9th August 2024," the firm stated.

Market Reaction and Peer Performance

The news of the rejected offer had a significant impact on the shares of other UK wealth managers. Shares of AJ Bell Plc jumped as much as 13%, partly boosted by its earnings, while St James’s Place Plc climbed almost 6%. Analysts noted that the potential deal highlights the valuation disconnect in the industry, which is currently experiencing a wave of mergers and acquisitions aimed at achieving scale and cost savings.

RBC analyst Ben Bathurst commented, "The news further demonstrates the ongoing disconnect between the market valuation of listed UK wealth names and the value ascribed to these businesses by both private equity and international financial institutions." This sentiment was echoed by Andrew Ells, an equity sales analyst at Peel Hunt, who noted that UK investment managers are attractive takeover targets due to their undervaluation and the strong correlation between organic growth and investor sentiment.

Industry Context and Historical Deals

The UK wealth management sector has seen several notable deals in recent years. Pollen Street Capital agreed to buy pension and wealth consultant Mattioli Woods Plc earlier this year. Other significant transactions include RBC Wealth Management’s takeover of Brewin Dolphin Holdings Plc, the merger between Tilney and Smith & Williamson in 2020, and Canaccord Genuity Wealth Management’s acquisition of the private client investment business of Scottish private bank Adam & Co from NatWest Group Plc in 2021.

The UK market remains relatively cheap compared to other major markets, as evidenced by the EV/Ebitda multiple of the MSCI UK Index, which trades at about a 38% discount to the MSCI World Index. Joachim Klement, a strategist at Liberum, stated, "The UK has a relatively fragmented wealth management market and consolidation can help counter the cost pressures and gain economies of scale."

Street Views

• Stephen Lansdown, Hargreaves Lansdown's Co-Founder (Bullish on Hargreaves Lansdown):

  "It’s woken the stock up. It’s interesting to see that third parties are now seeing the value in Hargreaves Lansdown and looking to take advantage of it."
  "It’s nice the company’s value is being recognized. Whether they’ve recognized enough value will be determined."