When Peter Hargreaves and Stephen Lansdown launched an funding web site in 1981, the intention was to unleash a retail investing increase by promoting funds and shares on to prospects, bypassing expensive monetary advisers.
Some 4 a long time later and their web site, Hargreaves Lansdown, is a FTSE 100 firm managing £155bn of property on behalf of about 1.9mn prospects, making it the UK’s largest self-service funding platform.
However regardless of its success, current share worth weak point has meant Hargreaves Lansdown is now on monitor to be taken over by a gaggle of personal fairness funds, lower than twenty years after it floated on the London Inventory Alternate.
The corporate introduced on Friday that it had agreed to a money provide from CVC Capital Companions, Nordic Capital and Abu Dhabi Funding Authority of £11.40 per share, valuing it at £5.4bn. At its peak, in 2019, Hargreaves Lansdown shares had been buying and selling at £24.
Hargreaves is backing the bid and has agreed to promote half his 19.8 per cent stake for proceeds of £534mn, whereas holding the rest within the new unlisted firm. Lansdown, who additionally backs the deal and plans to promote his complete 5.7 per cent stake — price £309mn — instructed the Monetary Instances it was a “bittersweet” second.
However the acquisition has raised questions over the way forward for Hargreaves Lansdown, which faces intense competitors from a brand new era of digital platforms which have put strain on its charges. Analysts consider the positioning might be higher positioned to scale back its costs and make investments extra in its expertise with no backlash from shareholders.
Some prospects have doubts, although. “Even small buyers have a bit of information of personal fairness and should nicely not be completely satisfied concerning the change,” mentioned one in all them, Russell, who mentioned he had an Isa and pension product with the corporate. “There are different platforms and it isn’t tough to modify if there are considerations.”
The deal is the most recent in a collection of personal fairness takeovers within the UK retail funding and wealth administration sector lately. Analysts say wealth managers have proved enticing targets, providing capital-light companies and progress prospects at a time when valuations of UK shares have fallen. The burden of more and more powerful regulation on the sector has additionally helped to drive consolidation.
Different current offers embrace non-public fairness agency Cinven taking a majority stake in wealth supervisor True Potential in 2021 and Pollen Avenue’s acquisition of Mattioli Woods earlier this 12 months. Permira has additionally been on the acquisition path over the previous decade, shopping for wealth managers Tilney, Bestinvest, Towry, and the skilled providers agency Smith & Williamson.
“With over 25 non-public equity-backed wealth administration companies within the UK, this transfer isn’t stunning,” mentioned Christian Kent of funding financial institution Houlihan Lokey. “It wouldn’t shock me if others comply with sooner or later”.
The non-public fairness companies snapping up Hargreaves Lansdown, which dominates about 40 per cent of the UK retail funding market, consider it affords a big progress alternative, as regulators and policymakers attempt to encourage extra folks to avoid wasting into pensions and different tax-efficient merchandise.
However the companies mentioned Hargreaves Lansdown wanted to be modernised. They’ll spend the following six months reviewing the enterprise to see the way it can enhance the corporate’s expertise and digital providing for patrons — which may result in various job cuts.
Charges, a few of which at the moment are costlier than rivals, is also lowered. Hargreaves Lansdown mentioned mentioned the sector was an “more and more aggressive surroundings the place, in areas, opponents at the moment are providing propositions approaching that presently provided by HL and at decrease value”.
Though Hargreaves Lansdown nonetheless controls the lion’s share of the market, rivals AJ Bell and Interactive Investor have piled on strain since rising in 1995. On Friday, Hargreaves Lansdown reported a 13 per cent drop in web new enterprise to £4.2bn over the previous 12 months.
Andrew Lowe, analyst at Citi, mentioned the bidders had been “more likely to pursue charge cuts” which might assist Hargreaves Lansdown “develop into considerably extra aggressive below non-public possession”.
Hargreaves Lansdown costs 0.45 per cent yearly on balances of as much as £250,000 throughout most of its accounts, in contrast with AJ Bell’s 0.25 per cent. Hargreaves Lansdown additionally levies a share buying and selling charge of practically £12 for purchasers dealing as much as 9 instances a month in contrast with a lot of its friends which cost about £4-£5, Lowe mentioned.
“We consider that HL should do extra to simplify its pricing and show worth to prospects, by specializing in decreasing these headline charges,” Lowe added.
Wealthy Mayor, a senior analyst at The Lang Cat, a platform consultancy, mentioned Hargreaves Lansdown’s costs have been “middling-to-higher”.
“Platform costs clearly haven’t been a barrier to Hargreaves Lansdown traditionally, however it’s truthful to say there’s rather more competitors today from the likes of AJ Bell, Interactive Investor and Vanguard to call a number of,” he mentioned.
Nordic Capital Companions, one of many non-public fairness companies concerned within the deal, has beforehand owned the same enterprise in Scandinavia, known as Nordnet. It was taken non-public in 2016 by Nordic Capital and the founding household Öhman Group, earlier than being relisted in 2020 on the Swedish inventory alternate.
Throughout its time below non-public possession, Nordic invested about €100mn into Nordnet’s expertise in addition to its digital providers for purchasers. The funding web site had about 567,000 prospects in 2016, which grew to 1.2mn when it was relisted. Its buyer base had grown to over 1.8mn by the tip of final 12 months.
One analyst mentioned that such progress potential meant Hargreaves Lansdown had in all probability been bought too cheaply.
“It’s the main platform and it has been bought at a number of decrease than its friends regardless of its obvious bid premium,” he mentioned. “Administration has given an upbeat outlook. However it’s going out for a whimper on the primary strategy — it’s disgraceful.”
Hargreaves was additionally essential in June when the corporate’s board introduced that it could assist the takeover. “It’s a shame that it’s come to this,” he mentioned on the time. “It was categorized as one of many best-run corporations within the UK 10 years in the past.”
Different shareholders will miss out on the chance to reinvest within the non-public automobile being provided within the deal, as they’re unable to carry unlisted inventory.
Earlier this 12 months James Hanbury, a fund supervisor at Lancaster Funding Administration, despatched a letter to Alison Platt, the chair of Hargreaves Lansdown, debating the equity of the proposed deal and noting that solely “a small variety of shareholders” would be capable to stay invested.
Hargreaves Lansdown may come again to the market sooner or later, very similar to Nordnet. Different non-public fairness companies have additionally sought gross sales, with JC Flowers promoting Interactive Investor to asset supervisor Abrdn in 2021 for £1.5bn.
For now, Hargreaves Lansdown, a pioneer of promoting public inventory on to particular person buyers, is on monitor to be the most recent London-listed firm to be taken non-public.