Wealth manager Tilney is trying to gatecrash a £2bn merger between two rivals by tabling a takeover bid for Smith & Williamson (S&W), further underlining the accelerating race to consolidate the sector.
Sky News has learnt that Tilney, which has assets of about £23bn under management, lodged an all-cash offer for S&W following confirmation of the latter’s talks to combine with Rathbone Brothers.
City sources said on Tuesday that S&W’s management team, led by David Cobb and Kevin Stopps, had expressed a desire to pursue a deal with Rathbones rather than the competing offer from Tilney.
One insider close to the situation described the value of the two bids as “comparable”, but said the Tilney offer would provide “greater certainty” because it would be entirely in cash.
Rathbones is working on the details of an all-share merger with S&W, with a formal announcement about the terms of a deal expected as early as next week.
The two-way fight for S&W highlights the battle to bulk up in a sector which faces a swathe of regulatory challenges.
Tilney is majority-owned by Permira, the private equity firm, and demonstrated its desire to grow through acquisition last year when it bought Towry for roughly £600m.
S&W manages roughly £19bn for clients.
It was effectively put up for sale earlier this year when AGF, a Canadian investor which holds roughly 30% of S&W’s shares, signalled that it was open to offers.
The fate of S&W will also be partly determined by its former employees, who own more than 20% of the shares.
AGF is understood to be being assisted by Spencer House, an advisor on asset management deals.
A source suggested that the Canadian firm had indicated support for the Rathbones tie-up.
One analyst described Tilney and S&W as “an odd fit” because of their different customer profiles, while another suggested that the preference of S&W’s management for an all-share deal over one providing the certainty of cash meant the company had been “hijacked by its management”.
The merger proposal from Rathbones, which was established in Liverpool in 1742 and has a market value of about £1.4bn, attributes to S&W a price tag of close to £600m, according to insiders.
If completed, their tie-up will bring together two companies employing roughly 3000 people in total.
Combining the two businesses would give Rathbones access to S&W’s network of specialist tax and financial advisers at a time when clients are seeking increasingly sophisticated services from wealth management firms.
The deal, which will be structured as a takeover by Rathbones, will hand shares in the combined group to hundreds of S&W employees, who own the majority of the company.
Plans for a flotation of S&W were put on hold amid growing market turmoil in 2007 as investors became jittery ahead of the banking crisis.
Rathbones provides investment and wealth management services for private clients, professional intermediaries and trustees, and manages roughly £32bn of clients’ money through Rathbone Investment Management.
Adding S&W’s asset management arm would create a funds powerhouse with well over £50bn under its stewardship, given that Rathbones managed more than £36bn in total at the end of June.
The merger would also bring the UK’s eighth-biggest accountancy firm into its ownership.
Rathbones’ swoop on S&W will follow moves by rivals such as Brewin Dolphin to broaden their offering to clients and comes in the wake of stellar growth at companies including Hargreaves Lansdown.
Rathbone Brothers plc, which is in the FTSE-250, is run by Philip Howell, its chief executive.
Mr Howell will assume the top job in the combined group if the S&W deal goes ahead, sources said.
Like other wealth managers, Rathbones is having to contend with the requirements of new legislation known as Mifid-II, which is paving the way for far-reaching changes to the way the industry operates.
Tilney, S&W, which is being advised on the talks by Evercore and Canaccord Genuity, and Rathbones, which is being advised by JP Morgan and Royal Bank of Canada, declined to comment.