Questions still remain over branding, restrictions, location and focus, but deal could be a positive one for both companies
The advice world has a new power-couple after shareholders in national firm Lighthouse agreed to a takeover by Quilter last week.
Lighthouse shareholders gave their overwhelming blessing to a marriage between Quilter and the firm, with 92.4 per cent voting yes, giving Quilter the green light to expand its already potent footprint across advice, platforms and discretionary fund management.
While the results were verging on unanimous, some Lighthouse investors were less than impressed with the level of dowry – £46m – that Quilter had brought to the table.
When Quilter first bid last month, Paul Mumford, a fund manager at Cavendish Asset Management – one of Lighthouse’s biggest investors, with a five per cent holding – appealed to Quilter’s competitors, namely Hargreaves Lansdown, Rathbones and Smith & Williamson, to come forward with a higher offer. Mumford tells Money Marketing: “Lighthouse is a special business, with a special offering that could easily sit in with any other advisory business. It’s not like any old financial adviser.
“I think it has a very good, niche position within a marketplace. It has been building its reputation fairly well. And more companies, if they had more resources, could expand this business model rapidly.”
But despite Mumford’s glowing report, it has not been all positive for Lighthouse, whose shares were trading at 22p each in March, the month before Quilter offered to pay 33p per share for the Aim-listed company.
Mumford says: “Lighthouse’s share price had fallen from a 40p level, and had drifted back to the mid-20s, and therefore it felt that if it could make the current offer, it would be an attractive premium over market price at that time.”
According to Mumford, the fact that Lighthouse was ready to accept an offer from a buyer should have been a signal for other big players to try to snap up a company trading “at a discount”.
When, on the eve of the shareholders’ vote, no firms had come forward with a counter-bid, Mumford was disappointed that nobody had seen the potential.
He did not expect a majority of shareholders to support the acquisition, which they, voting in line with the recommendation of the Lighthouse board, did.
Mumford says prior to the deal, Lighthouse got hold of a number of shareholders, who were prepared to give irrevocable undertakings over proceeding with the sale, but not Cavendish. He says: “Had it done so, I would have had to send it away with a flea in its ear.”
The acquisition will now be ready to be finalised in the summer, according to Quilter.
Mumford says: “To give credit to Quilter, it actually spotted the opportunity there.”
Getting a bargain?
Is Quilter really getting a deal of its dreams, paying £46m for a company that made £53m in the past year? Given profits came in at just £2.6m, some would argue that the deal actually presents a sizeable price on the traditional acquisition formula based on multiples of earnings.
Quilter had already added 200 restricted advisers to its ranks, with the buy-out of one of the largest firms in its Intrinsic advice network, Charles Derby. The latest deal enriches Quilter with a further 400 planners. This could put it ahead of the potential scale the much-talked-about Lloyds/Schroders financial planning joint venture announced earlier this year is seeking.
But it is not just about headcount. It is also about renewed distribution reach. Quilter’s Intrinsic has more than 3,500 advisers and more than 1,600 restricted financial planners.
While Intrinsic provides ongoing advice to some 200,000 customers, Lighthouse, through its affiliate planning relationships with 23 member groups – the likes of Unison, the Royal College of Nursing and the Royal College of Midwives – has access to about six million.
Lighthouse advisers have made an attractive distribution channel for providers looking to get their products to market. Late last year, Tavistock struck a deal to sell its capital protection products through Lighthouse. These are being distributed through Lighthouse’s investment arm, Luceo Asset Management, which was set up in 2016 and has driven some £1m of new flows a week for Lighthouse.
The future of the Tavistock arrangement may be in for a shake-up, as could Luceo itself, since Quilter already has its own asset management arm, Quilter Investors, and discretionary fund manager, Quilter Cheviot.
Taking the restricted route?
The future of the investment provision of both groups is one of many questions still to be answered.
Will the brands be rolled together? What happens to the management teams if so? Will Lighthouse retain its independent status, and what structure will Quilter’s ownership take?
Will Lighthouse continue to serve its union clients and focus on workplace deals, or pivot towards Quilter’s investment expertise?
Will advisers at both firms move to the same back-office technology or advice process? If so, what is the deadline on this? Will Lighthouse advisers eventually be required to use the Quilter platform?
However, much like the Schroders/Lloyds joint venture, it is still early days, and both companies are tight-lipped on the nature of the deal.
A Lighthouse adviser speaking to Money Marketing wondered whether the arrangement could see the tie-up go down the restriction route. The nature of that restriction could take a host of different forms, as both companies have different arms spread across the value chain.
Quilter has its own in-house platform; the Lighthouse adviser could see being restricted to that as part of the proposition.
In the case of the Lloyds/Schroders venture, the businesses have confirmed advisers will be restricted to investment platform Fusion Wealth, which is part of Benchmark Capital, in which Schroders owns a majority stake.
Potential teething troubles aside, Quilter arguably still got a good deal on its latest acquisition. Lighthouse, on the other hand, gets rid of the headaches that can come with being a listed company.
It has first-hand experience of this. When Lighthouse was trading at 4.88p seven years ago, the firm’s chairman at the time, David Hickey, now chairman of consolidator Fairstone, lobbied for the de-listing of the company from Aim, reasoning that the rules that come with listed status can put businesses at a disadvantage. The move then was put a stop to by 53 per cent of shareholders, and Hickey stepped down.
Despite not getting his way, Mumford is not planning on lowering his exposure after the buy-out. He says: “We are longer-term holders, and I feel that Lighthouse has a really good future in building up clients and its own sort of advisers.”