Close Brothers Group, a UK-based merchant bank, has recently signed an agreement to sell its wealth management division, Close Brothers Asset Management (CBAM), to funds managed by Oaktree Capital Management. The transaction is valued up to £200 million and signifies a notable strategic shift for both companies, affecting their immediate and long-term operational goals and perspectives. This deal includes several financial components, making it a complex yet carefully structured arrangement that reflects meticulous planning and strategic foresight.
The agreement details reveal that Oaktree will make an upfront cash payment of £146 million to Close Brothers. Additionally, CBAM is set to pay a £26 million dividend to Close Brothers before the transaction’s finalization. Furthermore, there is a provision for £28 million in contingent deferred consideration, which will be issued as preference shares. Ultimately, Close Brothers anticipates receiving around £172 million before transaction costs upon completion. The intricate financial engineering involved in this transaction showcases both the complexity and strategic intent behind the deal, highlighting a well-calculated maneuver aimed at optimizing the resources and goals of the entities involved.
CBAM, led by Eddy Reynolds, is a major player in the UK’s wealth management sector, offering comprehensive personal financial advice and investment management services across the country. The firm operates from 15 offices, employing over 150 investment professionals as part of its roughly 870-strong workforce. CBAM’s services include full bespoke management, managed portfolios, and various funds, which are delivered either directly through in-house financial planners and investment managers or via third-party financial advisers. This broad operational scope emphasizes CBAM’s significant presence and capability in the wealth management industry, making it a valuable acquisition for Oaktree.
Strategic Objectives Behind the Sale
The decision by Close Brothers to sell CBAM is rooted in a strategic assessment aiming to secure a competitive valuation for its wealth management unit. This move is designed to bolster Close Brothers’ capital position, allowing the bank to focus more intensively on its core lending business. This shift aligns with a broader industry trend where financial institutions are increasingly focusing on their primary areas of expertise while divesting non-core assets to enhance efficiency and fortify capital reserves. The transaction is emblematic of this trend, reflecting a strategic pivot towards core competencies and operational streamlining.
The financials behind the deal are also quite revealing. The transaction represents a valuation multiple of 27 times CBAM’s statutory operating profit after tax for the fiscal year 2024. As of July 31, 2024, CBAM’s gross assets were valued at £192 million, with the division reporting a post-tax profit of £7.4 million for that period. Additionally, Close Brothers anticipates that the upfront proceeds from this transaction will enhance its common equity tier 1 (CET1) capital ratio by approximately 100 basis points on a pro forma basis. These metrics underscore the financial prudence and expected benefits of the deal, particularly in terms of improved capital adequacy and resource optimization.
Impact on Close Brothers and Operational Focus
Mike Biggs, Chairman of Close Brothers, emphasized that the Board unanimously approved the transaction, recognizing its competitive value for shareholders and its strategic necessity in simplifying the group’s operations to concentrate on core lending activities. The divestiture of CBAM is intended to streamline Close Brothers’ operations, enabling a more focused allocation of resources, thereby aligning with the bank’s objective of capital strengthening while exploring new revenue growth opportunities. This structured realignment illustrates Close Brothers’ commitment to maintaining financial stability and liquidity while reinforcing its foundational business model.
In divesting CBAM, Close Brothers aims to streamline its operational focus and resource allocation. The organization acknowledges the robust growth of CBAM but identifies the divestiture as a crucial step in concentrating efforts on its primary lending sector. This move not only helps in managing capital more efficiently but also provides an opportunity to foster growth in core lending activities, ultimately aiming to deliver sustained value to shareholders. The deal, thus, serves as a strategic repositioning to enhance both operational efficiency and financial robustness.
Oaktree’s Plans for CBAM Under New Ownership
Oaktree Capital Management plans to leverage this acquisition to significantly accelerate CBAM’s growth trajectory. The investment firm intends to pump substantial resources into CBAM to enhance its profitability and expand its market footprint within the wealth management sector. Federico Alvarez-Demalde, Managing Director at Oaktree, highlighted the group’s extensive expertise in wealth management and their plans to collaborate closely with Close Brothers to ensure a seamless transition. This strategy underscores Oaktree’s focus on utilizing its industry experience to drive growth and operational efficiencies in CBAM.
The transition to Oaktree ownership promises to furnish CBAM with additional resources necessary for reaching new growth and operational milestones. This strategic investment will likely unlock new avenues for CBAM to broaden its market reach and enhance its service offerings, backed by a well-capitalized and experienced owner. The new ownership structure is poised to provide CBAM with the capital and strategic support needed to navigate the competitive landscape of the wealth management industry successfully, underlining a forward-looking approach aimed at sustainable growth and profitability.
Expected Completion and Regulatory Approvals
Close Brothers Group, a merchant bank based in the UK, has recently agreed to sell its wealth management arm, Close Brothers Asset Management (CBAM), to funds managed by Oaktree Capital Management. Valued at up to £200 million, this transaction marks a substantial strategic shift for both companies, influencing their short-term and long-term objectives.
The deal includes several financial components, highlighting the intricate structure and strategic planning involved. Oaktree will pay £146 million in cash upfront, and CBAM will issue a £26 million dividend to Close Brothers before finalizing the sale. Additionally, there’s a provision for £28 million in contingent deferred consideration, to be issued as preference shares. Close Brothers expects to net approximately £172 million before transaction costs upon completion. This intricate arrangement demonstrates the complex financial engineering and strategic intent of the deal.
Led by Eddy Reynolds, CBAM is a prominent player in the UK’s wealth management sector, offering extensive personal financial advice and investment management from its 15 offices. With over 150 investment professionals in a workforce of about 870, CBAM’s offerings range from bespoke management to managed portfolios and various funds, delivered through in-house and third-party financial advisers. This extensive scope underlines CBAM’s significant industry presence, making it a valuable acquisition for Oaktree.