March 25, 2013 8:02 pm

Schroders in £424m deal to buy Cazenove

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Schroders building in London©Reuters

Asset manager shares outperformed the MSCI in 20 of the 24 calendar years between 1990 and 2013

Conservative, cautious, stable. Three words that until Monday summed up Britain’s biggest and one of its oldest asset management businesses.

Schroders, which first opened its doors to business in 1804, broke with tradition by announcing a £424m all-cash deal to buy smaller rival Cazenove Capital, another historic City of London institution that launched in 1823 and has reportedly counted Queen Elizabeth II among its clients.

The deal is Schroders biggest transaction in its history. Until now it has concentrated on organic growth or by small acquisitions with so-called bolt-on transactions.

The deal, which values each Cazenove share at 135p, strengthens Schroders’ offering in private banking. Cazenove’s £17.2bn in assets under management will be added to the £229.2bn that Schroders reported at the end of 2012.

Schroders and Cazenove Capital

Schroders and Cazenove Capital
Assets under management

It is also the first time that Schroders, which recorded that it had £926m of investment capital at the end of December, has put the cash on its books to use in a big way.

However, Michael Dobson, chief executive, insists this is not a change in course. “This is just the right deal for us. We still remain committed to growing organically, not by acquisitions. Cazenove is a good cultural fit,” he says.

Certainly, the merger makes sense as it combines Schroders overall asset management strength with Cazenove’s private banking skills. The Cazenove name will be retained for private banking and wealth management.

“This is a big posh boy buying a smaller posh boy. I think Schroders are happy to acquire a group that they can relate to. A group that has history and a great brand name,” says one City strategist.

Schroders, listed on the FTSE 100, will enjoy a 75 per cent increase in its private banking and wealth management operation to £28bn with the acquisition.

Cazenove Capital is one of the UK’s best known stockbrokers. The fund management arm was spun out from the group after it entered a joint investment banking venture with JPMorgan in 2005.

However, Schroders remains the cautious group that it always was.

The influence of Bruno Schroder, the Octogenarian great-great grandson of Johan Heinrich Schroder, the co-founder of the business, is still strong. He sits on the board as a non-executive director and is said to be close to Mr Dobson.

Schroders game plan is to expand in markets it has not traditionally been strong in, although emphasising that it is not aiming to grow too large.

Rising regulatory costs have also squeezed margins in the business of managing money for well-heeled clients and the combination of Schroders and Cazenove will give the new business more scale to compete, as well as offering scope to lower costs.

Recent acquisitions by Schroders include a £23m deal for a 25 per cent stake in the Indian group Axis Asset Management in April last year. It is also close to finally sealing a deal to acquire STW, a US fixed income group. Emerging markets and US fixed income are two areas where Schroders sees potential growth.

Peter Harrison, Schroders global head of equities, on Monday picked out Cazenove’s Julie Dean, the UK fund manager who is considered by some strategists as one of the best performers in the business at the moment, as a key addition to the new combined group.

It is hoped Ms Dean’s arrival will help soothe concerns over the departure of Richard Buxton, who managed the flagship UK alpha fund. Schroders announced last week that Mr Buxton, one of the most high-profile fund managers in the City, was leaving for rival Old Mutual. There has already been speculation that clients and business loyal to Mr Buxton will now switch to the Anglo-South African insurer.

Although there are likely to be job cuts, these are expected to be in the back-office of Cazenove, which employs just over 300 people. Schroders, with a worldwide workforce of 3,000, is likely to retain most of its staff.

Perhaps the most critical thing for Mr Dobson and Schroders is that this acquisition may help the group steal more of the asset management pie from rivals, an important factor in a world where some strategists say consolidation is likely to accelerate and be a feature of the market.

As a senior strategist at a leading US bank says: “The big fish are likely to survive in this difficult market and Schroders is the biggest fish in the sea. It is the fund managers with scale who will be able to win clients from rivals. This is very important in a world where new business is hard to come by.”

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