Royal Bank of Canada, the country’s biggest lender, agreed to buy the U.K.’s BlueBay Asset Management Plc for 963 million pounds ($1.5 billion) as it seeks to become one of the world’s top 10 wealth managers.
Royal Bank will pay 485 pence a share in cash for BlueBay, a 29 percent premium to the London-based asset manager’s closing price on Oct. 15, the companies said today in a joint statement. It’s the largest acquisition for the Toronto-based bank in three years, adding $40 billion in assets.
“It looks to me to be a relatively fair and attractive price for a very high quality asset,” said Stuart Duncan, a London-based analyst at KBC Peel Hunt Ltd. with a “buy” rating on BlueBay. “This is a sector where consolidation always looks a possibility and where scale does matter.”
Royal Bank is looking to expand its wealth management business in Europe and the U.S. after the financial crisis depressed asset values in those regions. BlueBay is the lender’s largest takeover since it bought RBTT Financial Holdings Ltd. in Trinidad and Tobago for about $2.2 billion in October 2007.
“This acquisition will further RBC’s strategy to leverage our position as a top 10 global wealth manager,” George Lewis, group head of RBC Wealth Management, said today in a conference call with analysts.
BlueBay climbed 111.5 pence, or 30 percent, to 487.2 pence as of 2:31 p.m. in London, its biggest rise on record. That values the firm at about 968 million pounds. Royal Bank rose 20 cents to C$55.75 at 9:38 a.m. trading on the Toronto Stock Exchange.
Royal Bank Chief Executive Officer Gordon Nixon has said he expects wealth management to grow at a faster pace than other areas of the financial services industry due to growing demand for retirement planning by aging people in developed countries, and a rise in wealthy investors, especially in emerging countries.
The RBC offer “crystallizes people’s attention on what these businesses are worth,” Duncan said. He values RBC’s bid at about 19 times BlueBay’s 2011 earnings. Man Group Plc, the world’s biggest publicly traded hedge-fund manager earlier this year bought GLG Group Inc. for 20 times 2009 profit.
BlueBay, led by co-founder and CEO Hugh Willis, is a fund manager with long-only and hedge funds that invest in fixed-income assets including high-yield corporate bonds, emerging- market debt and structured products.
The firm shut its $1.2 billion Emerging Markets Total Return Fund in November 2008 after manager Simon Treacher resigned following a breach of internal rules. He was later banned by the Financial Services Authority. BlueBay rose more than six-fold between the closure of the fund and Oct. 15.
BlueBay’s directors own 20.5 percent of the company’s shares. Willis and Chief Investment Officer Mark Poole are the biggest individual shareholders, each owning 8.5 percent of the company. Those stakes are valued at about 81.9 million pounds in the deal.
Willis and Poole agreed to invest 25 percent of their proceeds from the deal into BlueBay funds. They will forfeit 40 percent of those funds if they leave the company within three years. BlueBay employees will have $280 million invested in the company’s funds following the transaction, the company said.
BlueBay said in a separate statement today that assets under management climbed 17 percent to $40 billion in the three months to Sept. 30. Inflows into emerging-markets funds climbed 23 percent to $8.1 billion and the company also benefitted from a rise in the euro against the U.S. dollar in the period.
BlueBay was advised by Spencer House Partners LLP and Credit Suisse Group AG. RBC was advised by Perella Weinberg Partners and RBC Capital Markets.