Acquisition of Walker Crips Asset Management Ltd

RNS Number : 2076Z

Liontrust Asset Management PLC

13 March 2012

 

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, TO US PERSONS, OR INTO THE UNITED STATES, OR INTO OR FROM CANADA OR ANY OTHER JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL

Embargoed until 7am on 13 March 2012

Stock Exchange Announcement

LIONTRUST ASSET MANAGEMENT PLC

Proposed Acquisition of Walker Crips Asset Managers Limited

Introduction

Liontrust Asset Management PLC ("Liontrust" or the "Company"), the specialist independent fund management group, today announces that it has entered into a conditional share purchase agreement (the "SPA") with Walker Crips Group plc ("Walker Crips") to purchase (the "Proposed Acquisition") the entire issued share capital of Walker Crips Asset Managers Limited ("WCAM") for a total consideration of £12.348 million (the "Consideration").

The Proposed Acquisition includes the highly rated fund management team at WCAM headed by Stephen Bailey and Jan Luthman.  The team has an excellent pedigree and the funds they manage have strong and consistent records. Stephen Bailey and Jan Luthman will, on completion of the Proposed Acquisition ("Completion"), join Liontrust and will continue to manage the CF Walker Crips UK Growth Fund, CF Walker Crips Equity Income Fund,  CF Walker Crips UK High Alpha Fund, CF UK Fund and two Institutional segregated accounts.

Highlights of the Proposed Acquisition include:

-      WCAM increases Liontrust's assets under management ("AuM") by £604 million.

-      Complementary acquisition enhancing Liontrust's fund management and distribution capability.

-      WCAM brings the highly rated UK fund management team headed by Stephen Bailey and Jan Luthman to Liontrust.

-      All eight UK equity unit trusts to be actively managed by Liontrust after Completion are in the first quartile of their respective IMA sectors since launch or fund management inception to 29 February 2012.

-      The transaction continues the expansion of Liontrust of the past 21 months.

-      The Consideration will be satisfied by £6,000,000 in cash, the allotment and issue of £4,000,000 in nominal value of Convertible Unsecured Loan Stock (the "CULS") and the allotment and issue of 1,851,719 new ordinary shares ("Ordinary Shares") of 1 pence each in the capital of the Company (the "Consideration Shares").  Further particulars of the Consideration are set out in the paragraph headed "Details of the Proposed Acquisition" below.

Implementation of the Proposed Acquisition requires the approval of the Company's shareholders ("Shareholders") voting in favour of the resolutions (the "Resolutions") to be set out in the notice convening a general meeting of the Company (the "Liontrust General Meeting"), further details of which are set below in the paragraph headed "General Meetings".  Implementation of the Proposed Acquisition also requires the approval of Walker Crips' shareholders in general meeting (the "Walker Crips General Meeting").  It is currently expected that the circulars convening these meetings will be posted within 7 days of this announcement.  Further details of the Liontrust General Meeting and the Walker Crips General Meeting are set below in the paragraph headed "General Meetings".

John Ions, Chief Executive of Liontrust, said: "The acquisition of WCAM significantly strengthens our fund management capability. Combining our existing fund managers with Stephen Bailey and Jan Luthman will create one of the strongest ranges of UK equity funds and teams.

"The addition of Stephen Bailey and Jan Luthman is testament to the fact we invest in fund managers with robust and repeatable investment processes that add value to client portfolios over the long term and that the success of Liontrust over the past couple of years enables us to attract the best talent.

"The macro investment process and style of Stephen Bailey and Jan Luthman is complementary to our Economic Advantage and Cashflow Solution teams. We are confident, therefore, that we will be able to use our sales and marketing capability and rising profile to capitalise on the performance to grow assets under management in the funds managed by Stephen Bailey and Jan Luthman. 

"The deal shows Liontrust's commitment to active fund management and those fund managers who have conviction in their investment processes. The market place is very crowded but companies that consistently add value will be recognised and their clients rewarded."

Information on WCAM

WCAM is an established discretionary portfolio manager of unit trusts, OEIC and segregated accounts, which are predominantly marketed to clients, institutional investors and intermediaries in the United Kingdom.  WCAM is incorporated, and has its registered office, in the UK. It is a wholly owned subsidiary of London York Fund Managers Limited, itself a wholly-owned subsidiary of G&E Investment Services Limited, which in turn is wholly owned by Walker Crips.

 WCAM AuM totalled £604 million as at 29 February 2012, and was broken down as follows:

Portfolio	Total (£m)	Institutional (£m)	Retail (£m)
CF Walker Crips UK Growth Fund	179	-	179
CF Walker Crips Equity Income Fund	245	-	245
CF Walker Crips UK High Alpha Fund	13	-	13
CF UK Fund	4	-	4
Institutional segregated accounts	163	163	-
Total	604	163	441

The fund management team at WCAM headed by Stephen Bailey and Jan Luthman has an excellent pedigree and the funds they manage have strong and consistent records. Jan Luthman joined WCAM in 2000, having worked at Hambros Bank and subsequently at Invesco Perpetual. Stephen Bailey joined Walker Crips in 1987, is the Investment Director of WCAM and has been, with the support of Jan Luthman, instrumental in WCAM's development. 

CF Walker Crips Equity Income and UK Growth Funds are both A rated by OBSR and on the Citywire Selection list. The CF Walker Crips Equity Income Fund is on the Hargreaves Wealth 150 list, was judged the Best UK Equity Income Fund over five years by Lipper in 2011 and has outperformed the FTSE All-Share index in seven out of the eight calendar years since its launch on 31 October 2003. Stephen Bailey and Jan Luthman have both been rated Alpha Managers by Financial Express for each of the past four successive years - 2009, 2010, 2011 and 2012.

The quartile rankings over various time periods of the funds that Stephen Bailey and Jan Luthman manage are detailed below:

Funds	1 Year	3 Year	5 Year	Since Launch or Manager inception	Launch or Manager Inception date
CF Walker Crips UK Growth Fund	1	2	1	1	05/03/2002
CF Walker Crips Equity Income Fund	3	2	1	1	31/10/2003
CF Walker Crips UK High Alpha Fund	3	3	1	1	27/10/2006
CF UK Fund	1	-	-	1	17/02/2010

Source: WCAM. Quartile rankings to 29 February 2012. Past performance is not a guide to the future; the value of investments and the income from them can fall as well as rise. Investors may not get back the amount originally subscribed.

In addition to the funds listed above, WCAM is also investment manager of the CF Walker Crips Corporate Bond Fund, the CF Walker Crips Select Income Trust and the CF Walker Crips Global Growth Trust (together the "Administration Funds"). At Completion, WCAM will delegate its investment management responsibilities for the Administration Funds to an appropriately authorised company within the Walker Crips group. The AuM for the Administration Funds is therefore not included in WCAM AuM. The principal reason for Walker Crips retaining these investment management responsibilities is the high number of Walker Crips group clients that are invested in these funds. WCAM also provided certain administration services to a range of offshore funds (the "Offshore Administration Funds"). In February 2012 Walker Crips announced that the manager of the Offshore Administration Funds has decided to move the administration from WCAM and therefore the Offshore Administration Funds will not form part of the Proposed Acquisition. Historically, WCAM managed a stockbroking business, which was transferred out of WCAM in 2010, and an investment advisory business, which will be transferred out of WCAM prior to Completion and does not form part of the Proposed Acquisition. WCAM also receives fund dealing commissions in relation to dealings by the funds managed by WCAM from Walker Crips Stockbrokers Limited. As WCAM will not receive these revenues or incur the related administration expenses after Completion, they are therefore not included in the Proposed Acquisition.

WCAM reported revenue of £5.0 million (2010: £3.8 million) and profit before tax of £2.4 million (2010: £1.7 million) for the year ended 31 March 2011.

However, as set out in the Walker Crips' announcement of 13 March 2012, after taking account of Walker Crips's retention of (i) the investment management responsibilities for the Administration Funds; and (ii) the Offshore Administration Funds; (iii) the stockbroking and investment advisory business; and (iv) fund dealing commissions, which are not part of the Proposed Acquisition, for the year ended 31 March 2011 the reduction in revenues for Walker Crips is £3.6 million (2010: £2.7 million) and the reduction in profit before tax is £1.9 million (2010: £1.3 million). Such revenues and profit before tax include (iv) (as referred to above), which Walker Crips will no longer have the benefit after Completion but to which Liontrust will also not have the benefit.

The impact of excluding (i), (ii), (iii) and (iv) (as referred to above) would have been to reduce WCAM's revenues to £2.4 million (2010: £1.8 million) and profit before tax to £1.1 million (2010: £0.8 million) for the year ended 31 March 2011.

As at 31 March 2011, WCAM had net assets of £0.6 million (2010: £0.8 million). The value of the gross assets, as at 31 March 2011, being acquired by Liontrust is £1.4 million.

Stephen Bailey and Jan Luthman are supported in their current roles at WCAM by three individuals, including the sales and distribution team. All of these individuals will transfer to Liontrust with effect from Completion.

Background to and reasons for the Proposed Acquisition

Liontrust has been growing its business operations since 2010. Over the past 21 months, Liontrust has restructured its business, initiated a marketing campaign to develop the Company's brand, raised awareness of Liontrust's strong fund performance and broadened its client base.  In October 2011, Liontrust successfully expanded into the fast growing Asia and Emerging Markets asset classes through its acquisition of the fund management business of Occam. The Proposed Acquisition will further expand Liontrust's capabilities, bringing to Liontrust a number of top-rated products and investment managers that will complement Liontrust's existing fund management capability.

As at 29 February 2012, Liontrust's total AuM stood at £1,489 million, the first time since June 2009 that Liontrust's AuM has exceeded £1,400 million.  For the financial year ended 31 March 2011, Liontrust achieved net sales of £81 million. This was the first time that Liontrust had been in a net positive sales position since the financial year ended 31 March 2004. This positive net sales position has continued into the current financial year with net sales of £106 million to 29 February 2012 (net inflows of £31 million in the current quarter to date). Individual funds have made significant contributions. Liontrust Special Situations Fund, for example, has grown in value from £14 million in June 2010 to over £280 million as at 29 February 2012. The fund was named the Best UK Growth Fund at the Investment Week Fund Manager of the Year Awards 2011 and on 26 January 2012 was added to the Citywire Selection list, which comprises the 128 funds most highly rated by Citywire. Liontrust European Growth Fund has recently been granted an A rating by OBSR, joining Liontrust Special Situations Fund and Liontrust UK Smaller Companies Fund which also enjoy this rating.

It is anticipated that Stephen Bailey and Jan Luthman, the senior fund managers of WCAM, will join the existing Liontrust fund management teams, which currently comprise four principal teams: the Economic Advantage team (managed by Anthony Cross and Julian Fosh and which invests in UK equities); the Cashflow Solution team (managed by James Inglis-Jones and Gary West and which invests in UK Income and European long only and long/short equities); the Emerging Markets team (managed by Eoghan Flanagan and James Mellersh); and the Asia team (managed by Mark Williams).

As at 29 February 2012, WCAM AuM was £604 million. Combined with Liontrust AuM (which at 29 February 2012 was £1,489 million), the directors of the Company (the "Directors") expect revenues for the Liontrust group of companies as enlarged by the Proposed Acquisition (the "Enlarged Group") to increase accordingly. In addition to increasing Liontrust's AuM, the acquisition of WCAM presents a further valuable opportunity for the Company, which the Directors expect significantly to enhance Liontrust's earnings (before costs of the Proposed Acquisition, costs related to the  re-organisation of WCAM within the Liontrust group, inducement payments to the Senior Executives and the amortisation of Proposed Acquisition related intangible asset) in the financial year ending 31 March 2013 and also in subsequent financial years (before the amortisation of the Proposed Acquisition related intangible asset).

The Directors anticipate that implementation of the Proposed Acquisition will cause little, if any, disruption for investors in those WCAM funds that Stephen Bailey and Jan Luthman will continue to manage. Not only does the Company have no current intentions to change the way any of these funds are managed, but importantly Liontrust wants to support Stephen Bailey and Jan Luthman in managing their funds according to their own investment process and market views. The Directors believe that it will be possible for WCAM's and Liontrust's UK equity income and UK growth funds to operate side by side and for the Enlarged Group to retain all of these funds, preserving the different investment processes and styles which characterise each of them.

The Proposed Acquisition will also allow Liontrust to leverage its existing sales and marketing capability. Liontrust's sales team comprises nine experienced professionals who are engaged with market participants across UK retail, UK institutional, international institutional and hedge fund buyers. This existing sales team and its capabilities will be strengthened and enhanced by the addition of two sales specialists from WCAM. In addition, the Proposed Acquisition will enable Stephen Bailey and Jan Luthman to capitalise on the high regard in which they are both held amongst fund buyers by increasing significantly the amount of assets in the funds they manage.

In increasing the AuM of Liontrust through the Proposed Acquisition, the Directors believe that value will be added to the current Liontrust offering. The existing WCAM fund management team will enjoy greater resources and enhanced infrastructure through being part of a larger organisation, while the combination of the WCAM fund managers with Liontrust's existing teams will, the Directors believe, provide current WCAM investors with a wider choice of asset classes and investment products.

Finally, the Proposed Acquisition will add further client diversity to the existing Liontrust business. Although Liontrust already maintains a diverse portfolio of business in the UK, the addition of WCAM's client base will contribute a number of new key client relationships.  In particular, the Proposed Acquisition will increase Liontrust's number of institutional segregated accounts from ten to twelve and the number of institutional segregated account relationships from six to eight.

Details of the Proposed Acquisition

The principal agreement governing the Proposed Acquisition is the SPA.  Under the terms of the SPA, the Company has conditionally agreed to acquire the entire issued share capital of WCAM for the following Consideration:

·     £6 million, payable in cash on Completion (subject to certain adjustments following Completion);

·     £4 million, to be satisfied by the allotment and issue to Walker Crips of £4,000,000 in nominal value of the CULS at Completion (save where the Company is prohibited from doing so, in which circumstances either Completion will be delayed, or the allotment will take place, in either case as soon as the Company is permitted to do so). The CULS carries interest at the rate of 6 per cent. per annum of the nominal value of the CULS.  This interest accrues on a daily basis and is payable quarterly in arrears. Conversion of the CULS is on the basis of one Ordinary Share for each £1 in nominal value of the CULS on the following principal terms:

o  no entitlement to convert in the period from Completion to 19 November 2012;

o  no more than 4.99% of the number of Ordinary Shares already admitted to trading on a regulated market situated or operated in the United Kingdom at that time in the first year after issuing; and

o  no more than 9.99% per year thereafter until the maturity date, being 5 years at the CULS holder's option.

Unless previously redeemed, the CULS falls to be redeemed in full, together with all accrued interest thereon, on the fifth anniversary of Completion.

·     1,851,719 new Ordinary Shares (being the Consideration Shares), to be allotted and issued to Walker Crips at Completion (save as described above); and

·     an amount equal to the net asset value of WCAM as at Completion (on a pound-for-pound basis, subject to a cap of £1 million).

One of the assumptions to the Consideration is that WCAM AuM at Completion is between £455 million and £685 million.  Accordingly, if WCAM AuM is less or more than these amounts (as applicable), the SPA legislates for a variation to the Consideration (up or down) by £500,000.

For illustrative purposes, the terms of the Proposed Acquisition value the entire issued share capital of WCAM at £12.348 million, based on the following assumptions:

·     the share price of an Ordinary Share being £1.025 (being the Closing Price on 12 March 2012);

·     estimated WCAM net assets of £450,000; and

·     that the value of WCAM AuM at Completion did not exceed £685 million nor amount to less than £455 million.

On the basis of these assumptions, the maximum consideration payable would have been £12.848 million (if the value of WCAM AuM at Completion had exceeded £685 million). Correspondingly, the minimum consideration payable would have been £11.848 million (if the value of WCAM AuM at Completion had been of an amount lower than £455 million).

The Consideration Shares will, together with any Ordinary Shares arising as a result of the exercise of conversion rights in respect of the CULS, be subject customary orderly market arrangements. 

The Company's estimated fees and expenses in connection with the Proposed Acquisition are £0.770 million and the cost of inducement payments to the Senior Executives and other WCAM personnel is £1.367 million. The notice period for Stephen Bailey and Jan Luthman is 6 months, such notice to expire no earlier than the third anniversary of them joining Liontrust.

The SPA, and therefore the Proposed Acquisition, is subject to the satisfaction of certain conditions including:

·     each of the resolutions being passed (without amendment) at, respectively and as applicable, the Liontrust General Meeting and the Walker Crips General Meeting, and not at any adjournments thereof; and

·     the consent of the FSA to the change of control occasioned by the Proposed Acquisition having been obtained.

In addition, SPA contains certain rights of termination, including if, at any time prior to Completion any of the warranties (given by Walker Crips) or the reverse warranties (given by Liontrust) in each case contained in the SPA are not true and accurate in all respects and not misleading in any respect on and as of the date of that agreement and immediately prior to Completion and the same would be reasonably likely to give rise to a loss of £2,000,000 or more.

Accordingly, if any of the conditions are not satisfied, or if the Company or Walker Crips exercises a right to terminate the SPA prior to Completion, the Proposed Acquisition will not proceed. 

Under the SPA, Walker Crips has agreed to certain customary behavioural undertakings in relation to the business and operations of the Company.  In addition, prior to Completion, Walker Crips has agreed to make arrangements to distribute excess cash out of WCAM (to the extent permitted by law and regulatory capital requirements).

General Meetings

Implementation of the Proposed Acquisition requires the approval of the Company's shareholders ("Shareholders") voting in favour of the resolutions (the "Resolutions") set out in the notice of the Liontrust General Meeting to be proposed at that meeting. In addition to the Resolutions  which relate specifically to the Proposed Acquisition, Shareholders will also be asked to approve a number of amendments to the articles of association of the Company (the "Articles"), primarily to reflect the implementation of the remaining substantive provisions of the Companies Act 2006 (the "2006 Act") in August and October 2009.

By way of summary, the Resolutions propose that:

·     the Proposed Acquisition is approved and the Directors are authorised to implement the Proposed Acquisition for the purposes of paragraph 10.5.1(2)R of the Listing Rules (as a Class 1 acquisition);

·     the Directors are authorised for the purposes of section 551 of the 2006 Act to allot and issue Ordinary Shares (being the Consideration Shares) up to an aggregate nominal amount of £18,518 (representing, as at the date of this document, 4.99 per cent. of the Company's issued share capital) in connection with the Proposed Acquisition;

·     the Directors of the Company are authorised to constitute the CULS and for the purposes of section 551 of the 2006 Act, to allot to Walker Crips up to £4,000,000 in nominal value thereof, and in connection with any subsequent allotment of Ordinary Shares pursuant to the exercise (in full) of conversion rights in respect of the CULS (which number of Ordinary Shares allotted pursuant to the exercise of such conversion rights shall be no greater than £40,000 in aggregate nominal value), to approve the disapplication of statutory pre-emption rights in respect thereof; and

·     Shareholders approve certain amendments to the Articles to reflect the remaining substantive provisions of the 2006 Act which became effective on 3 August and 1 October 2009.

It is currently expected that the circular, including the notice of the Liontrust General Meeting will be posted within 7 days of this announcement. The Liontrust General Meeting is to be held on or around 5 April 2012 at The Savoy Hotel, Strand, London WC2R 0EU. If the Resolutions are passed at the Liontrust General Meeting, subject to the satisfaction of the other conditions to the Proposed Acquisition, Completion is expected to take place in April 2012.

Implementation of the Proposed Acquisition also requires the approval of Walker Crips' shareholders at the Walker Crips General Meeting as it constitutes a Class 1 disposal for Walker Crips.  It is currently expected that the circular convening the Walker Crips General Meeting, including the notice convening that meeting, will be posted within 7 days of this announcement, such meeting proposed to be held on the same date as the Liontrust General Meeting.

Irrevocable undertakings and letters of intent

As at the date of this announcement, the Company had received irrevocable undertakings representing, in aggregate, 9.63 per cent. of the issued share capital of the Company from the Directors. The Company has also received letters of intent from certain other Shareholders, stating that they intend to vote in favour of the Resolutions, representing in aggregate 31.45 per cent. of the issued share capital of the Company.

For further information please contact:

Contact:

Liontrust Asset Management PLC                                                                            Tel: [phone]

John Ions                                                                                                                             www.liontrust.co.uk

Vinay Abrol

Simon Hildrey (Head of Marketing & Communications)

Singer Capital Markets Limited                                                                                 Tel: [phone]

Jonathan Marren

Jenny Wyllie

Background on WCAM Fund Managers

Stephen Bailey

Stephen joined Walker Crips in 1987. Stephen started his career in stockbroking in 1985 as a private client portfolio manager with Statham, Duff, Stoop. He followed this with a year at Sheppards & Chase, before joining Walker Crips Weddle Beck plc in 1987. Currently he is investment director of Walker Crips and with the support of Jan Luthman, has been the architect and driving force behind the development of Walker Crips's asset management business. Now, working alongside colleague Jan Luthman, he jointly manages the CF Walker Crips UK Growth, Equity Income, UK High Alpha and CF Corporate Bond funds, and two institutional segregated accounts

Jan Luthman

Jan Luthman graduated with a degree in Civil Engineering from St Andrews University in 1967. He spent eighteen years in international corporate management. Following a mid-life career change, Jan was amongst the first to pass the Securities Association (now the Chartered Institute for Securities and Investment) exams in Investment Analysis in 1987, followed by Fund Management in 1988. Having worked at Hambros Bank (1988-92) in sales and subsequently at Invesco Perpetual (1992-2000) in sales and as Head of Investment Communications, Jan joined WCAM in 2000 and  now, working alongside colleague Stephen Bailey, he jointly manages the CF Walker Crips UK Growth, Equity Income, UK High Alpha and CF Corporate Bond funds, and two institutional segregated accounts.

Publication of documents

This announcement and, when published, the circular convening the Liontrust General Meeting, will be available for download on the Company's website www.liontrust.co.uk.   The circular, and a form of proxy for use at the Liontrust General Meeting, is expected to be posted with 7 days of this announcement or otherwise communicated to shareholders.  To be valid, the forms of proxy should be completed, signed and returned following the procedures described on in Notes to the notice of Liontrust General Meeting so as to be received by the Company's registrars as soon as possible but, in any event, so as to arrive no less than 48 hours prior to the date and time of the meeting.  Completion and return of a form of proxy will not prevent members from attending and voting in person should they wish to do so.

A copy of the circular convening the Liontrust General Meeting, when published, will be submitted to the National Storage Mechanism and will be available for inspection at www.liontrust.co.uk. A copy of the circular will also be made available for inspection by Shareholders at the Company's registered office, 2 Savoy Court, 2 Savoy Court, London WC2R 0EZ, from the time of its publication until the date of the Liontrust General Meeting itself. 

Forward Looking Statements

This announcement contains certain forward-looking statements with respect to the financial condition, results of operations and businesses and plans of Liontrust and its subsidiaries (the "Group"). These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that have not yet occurred. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. As a result, the Group's actual future financial condition, results of operations and business and plans may differ materially from the plans, goals and expectations expressed or implied by these forward-looking statements.  Liontrust undertakes no obligation publicly to update or revise forward-looking statements, except as may be required by applicable law and regulation (including the Listing Rules of the Financial Services Authority).  Nothing in this announcement should be construed as a profit forecast or be relied upon as a guide to future performance.

Other information

The release, publication, transmission or distribution of this announcement in, into or from jurisdictions other than the United Kingdom may be restricted by law and therefore persons in such jurisdictions into which this announcement is released, published, transmitted or distributed should inform themselves about and observe such restrictions. In particular (but without limitation) this announcement is not for release, publication or distribution, directly or indirectly, to US persons, or into the United States, or into or from Canada or any other jurisdiction in which the same would be unlawful. Any failure to comply with the restrictions may constitute a violation of the securities laws of any such jurisdiction.

ENDS

 

END

 

 

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