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Proposed sale of River and Mercantile’s Solutions business to Schroders for £230 million

RMG to focus on building specialised Asset Management business

RMG has today announced that it has entered into a contract (the “Sale Agreement”) for the Schroders group (the “Purchaser”) to acquire its Solutions business (“Solutions”) (the “Sale”). Completion of the Sale is conditional on RMG shareholder and regulatory approval.

Key Sale highlights

  • Proposed Sale of Solutions to Schroders for an enterprise value of £230m. Solutions’ Assets Under Management as at 30 September 2021 amounted to £42 billion[2]
  • Sales price represents a premium of 28.2% over RMG’s undisturbed market capitalisation on 9 August 2021, the day prior to the announcement by RMG that it had received a number of expressions of interest in Solutions
  • Enterprise value to EBITDA multiple of 13.4x based on Solutions’ EBITDA for the year ended June 2021[3]
  • Subject to and conditional on completion of the Sale, James Barham, RMG’s CEO, will transfer with the Sale to lead this business and also to play a broader management role at Schroders. Until completion he will remain CEO of RMG
  • Alex Hoctor-Duncan will succeed James Barham as CEO of RMG following completion, and will join the Board on 29 November 2021 as previously announced
  • The Board will enter into a consultation with Shareholders on the use of the proceeds. It intends to return the majority of proceeds to Shareholders while retaining sufficient funds both to ensure that its existing business remains well capitalised and to facilitate its plans for the development of the asset management business

Board recommendation

The Board unanimously supports this Sale and believes this transaction with Schroders is a positive move for all stakeholders of the Group, for its Shareholders, its people, and its clients, combining one of the UK’s largest asset managers with the UK’s longest established solutions business. Solutions will maintain its distinct characteristics within Schroders, creating what the Board believes to be a compelling proposition in a rapidly growing and exciting industry. At the same time, this will enable RMG’s remaining business to focus on developing its specialist asset management capabilities.

The Sale is the outcome of a competitive sales process that the Board initiated having reached the view that the market capitalisation of RMG materially undervalued the Company and the sum of its underlying individual businesses and following a number of unsolicited approaches for Solutions. The Board has concluded unanimously that the offer from Schroders for Solutions should be recommended to Shareholders.

The Sale constitutes a Class 1 transaction for RMG under the UK Listing Rules and completion of the Sale is therefore conditional on shareholder approval at a general meeting of RMG that is expected to take place in mid-December 2021. As Solutions is authorised and regulated by the FCA, the Sale is also subject to the FCA approving the acquisition of Solutions by Schroders. The transaction is expected to complete during Q1 2022.

Consultation with Shareholders over the proceeds to be returned

Following completion, the Board intends to return the majority of expected net cash proceeds to Shareholders and will consult with Shareholders regarding the amount, with the balance to be retained to support RMG’s future growth strategy. The Board intends to retain sufficient funds both to ensure that RMG’s existing business remains well capitalised and to facilitate its plans for the development of the asset management business. Further details of the proposed capital return will be included in the Circular to be sent to Shareholders.

Investing for the future growth of the Asset Management business

The Board also announces its intention to refocus RMG as a specialist asset manager and to diversify and grow its investment capability, product range, and geographic exposure. RMG plans to create and offer a broader range of high quality and value-added equity products, and in-demand alternatives and private market products, building on the Group’s existing offering. It will initially focus this expanded offering through its existing distribution channels in UK wholesale and institutional markets which have generated consistent net inflows in the last 12 months. However, it also intends to extend distribution to expand its addressable market. The Board will:

  • Ensure RMG’s current, well-respected equities teams remain a central element of the Group’s offering
  • Continue to support and invest in developing RMG’s Infrastructure investment team as a core

part of its future strategy and in line with the plan to diversify RMG’s investment capabilities

  • Broaden the Group’s investment propositions, geographic reach and range of funds and associated structures either organically, or through acquisition
  • Ensure that sustainable investment propositions underpin all of its activities
  • Look to hire additional fund management teams with strong performance records to accelerate the achievement of RMG’s objectives and generate enhanced Shareholder returns

The Board will develop its detailed post-Sale strategic plan over the coming months and will update Shareholders on this plan as part of a full strategy, capital allocation and dividend policy update in the Spring of 2022.

Management change

James Barham is the Chief Executive of RMG and Chair of RAMIL. Subject to and conditional on completion of the Sale, the Board has agreed that in connection with the Sale Mr. Barham will step down and transfer with the Sale to lead this business and also to play a broader management role within Schroders. In response to a request from Schroders, the Board has agreed to waive Mr. Barham’s notice period in order to facilitate the transfer. Mr Barham’s employment and appointment as CEO and Executive Director of RMG will therefore cease on completion of the Sale.

Mr. Barham will remain as CEO of RMG until completion and he will continue to work with the Board to ensure the successful completion of the Sale. Subject to and conditional on completion of the Sale, the Board has agreed that Alex Hoctor-Duncan will succeed James Barham as CEO of RMG. As previously announced, Alex is due to join the Board of RMG on 29 November 2021 as an Executive Director focused on strategic development.

Preliminary Results

RMG will release its preliminary results for the year ended 30 June 2021 on 8 November 2021. The Group is trading in line with expectations.

Jonathan Dawson, Chair, said:

“We felt the Company’s share price undervalued RMG and believed that the greatest value for Shareholders could be unlocked through a formal Sale process. We believe that the price and terms that have been agreed are attractive and that Schroders will be a very good owner for the business. We encourage Shareholders to support the transaction, as the Board will be doing in respect of voting their own holdings, following their unanimous approval of the Sale.

“The Solutions business has grown strongly over the last five years and delivered excellent results through the recent CMA review compared with its peers. Investment performance has continued to be strong, the business was appointed by twelve new clients over the last year and the pipeline for future growth is very compelling. The Board believes that the ability to deliver on this and future growth opportunities in an exciting and dynamic market will be enhanced by being part of Schroders and will benefit from the additional investment and scope that will come through this transaction.

“The proceeds will not only allow us to make a significant return of capital to Shareholders, but also to focus on accelerating the organic and acquisitive growth of our specialist Asset Management business. A clear position as a pure asset manager, together with an enlarged sales footprint, and increasing product offering, will provide significant asset raising potential and generate continued growth.

“As part of the transaction, James Barham will be leaving RMG to join Schroders. I would like to take this opportunity to thank James for his service to the business from founding River and Mercantile in 2006, through to the merger and more recently his leadership since he became the Group Chief Executive in 2019, including managing this complex Sale process and delivering meaningful value for Shareholders. I am delighted that Alex Hoctor-Duncan will be the new CEO of RMG, bringing us the benefit of his skill set and prior track record to drive our future growth.”

James Barham, CEO, said:

“Our Solutions business is a scarce asset in an attractive and growing market segment. Our success has been forged through our distinctive investment philosophy, process and clear strategic thinking, integrated implementation, and the strength and capability of our people. This approach is based on a clear understanding of our clients’ needs and has delivered very strong returns for clients since 2003.

“We have worked hard during this process to not only achieve the optimum valuation for Shareholders, but also find the very best partner for our clients and people. I have been encouraged by the strong interest shown by the bidders and I believe that Schroders is the right choice and represents an excellent owner for the long- term future growth of the business.  I am excited by the strength of this combination and the continuity and opportunity this provides for our clients and people.

“I am thrilled to be joining Schroders and the opportunity to build on the exceptional Solutions platform we have developed over the last twenty years. It has been a great honour to lead a simply fantastic business and to work with such incredibly talented people. We are a people-led business and it is the strength of those people that define the strength of the organisation. Schroders displays these same characteristics, giving us confidence that we will continue to develop as a market leading Solutions business with one of the UK’s largest asset managers.”

[1] Solutions denotes River and Mercantile Investments Limited (“RAMIL”) and comprises the Group’s non-US Fiduciary Management, Advisory and Derivatives businesses

[2] Assets Under Management  (AUM) represents amounts on which management fees and performance fees are charged across all asset classes managed by RAMIL. In relation to Derivatives, AUM represents the aggregate billing notional of the derivative contracts on which management fees are charged

[3] Source: RAMIL’s audited financial statements for the year ended 30 June 2021

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