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What could be more worthy of anguished garment-rending than the sale of a UK national treasure at an uninspired price? Asset manager Schroders is being acquired by US rival Nuveen for a mere £9.9bn, a shade below its peak market capitalisation in 2021. This neatly fits a wider narrative about London’s shrinking role in the global financial system. But even if it’s true, companies and investors may be leaning in a bit too enthusiastically.
Schroders’ unexciting ending has been a long time in the making. The company, whose founding family still owns over 40 per cent of the shares, managed to back itself into a languishing corner of the financial industry, mostly missing opportunities others seized vigorously, such as the growth in private assets and passive investing. The 34 per cent premium Nuveen is offering, on a share price that had already risen 12 per cent this year, is therefore not bad.
One way to look at it: Nuveen’s bid values Schroders at 16 times this year’s forecast earnings. Traditional European asset managers such as Aberdeen, Amundi and DWS trade on a market-weighted multiple of 12.3 times, according to Jefferies analysts. Wealth management usually elicits a higher valuation — UK platforms Quilter and AJ Bell are in the mid-teens — but that activity only contributes about a quarter of Schroders’ operating profit.
There is a sense, though, in which the national mood of quiet despondency appears to have seeped into Schroders’ boardroom. The directors deemed that the £6.12-per-share offer captures the full value of the company’s own cost-cutting plans and then some. In other words, it could not have done better on its own. Analysts presumably agree: the average target price is just £4.50 a share, where it was two years ago according to LSEG.
Still, it never hurts to show you tried. Schroders could, say, have explored whether there were buyers for its constituent parts. Selling its asset management business to a competitor might have yielded the potential to cut costs; the Nuveen deal promises none. Doubling down on wealth management amid the current AI-ignited stock declines might feel foolhardy today, but could end up looking inspired in a few years’ time.
Even without a break-up, why not shop the company around? Chief executive Richard Oldfield told the FT he did not do this, and that there was no surreptitious auction. That’s a shame, because bidding wars are a great way to get prices up: earlier this week, Evelyn Partners’ owners squeezed a valuation out of buyer NatWest that is 50 per cent more, on an enterprise value to ebitda basis, than Schroders is getting.
The board’s restraint might please those who feel the City’s historic financial brands should not be hawked like a knock-off watch. The company’s claim of “shared values” with Nuveen, while no use to selling shareholders, is probably helpful in retaining Schroders’ investment employees. But the fact Schroders ends its listed life with a whimper rather than a bang will only enhance the impression that for London, the best is past.