Alliance Trust has defied critics of its corporate strategy with a £14million acquisition which will enable its Dundee-based savings business to almost double in size.
Brewin Dolphin is to sell its Edinburgh-based stockbroking business Stocktrade to Alliance Trust Savings and transfer all 50 staff and its two directors to ATS. Alliance Trust will advance the £14m purchase price and up to a further 8m in regulatory capital.
The deal will take ATS's revenue from £12.9m to £22.5m, customer numbers from 57,000 to over 100,000, and assets under administration from £7.2bn to over £11.5bn. It will enable ATS to leapfrog the likes of Nucleus (£9bn) and Royal London's Ascentric (£9.5bn) in a crowded and competitive platform market.
Stocktrade offers a share-dealing service not only for direct and advised customers but for building societies, providers of personal pension plans and corporate Isas, and company share schemes.
Alliance said the deal would bring increased scale and attractive cost and revenue synergies, and was "expected to transform ATS' current break-even profitability into meaningful profit in 2016 prior to integration costs".
The company raised eyebrows at its annual meeting last month when it promised that ATS would be looking to buy up smaller rivals and had set a target of £45bn of assets by 2020 - more than six times the present level.
Observers said yesterday the project would be a testing one, given that ATS has yet to complete the migration of its own customers onto a new software platform, and it would now have to integrate another business as well.
The company said: "The parties are working together to ensure a smooth transition for all customers to the ATS platform."
The move to invest further in one of its two subsidiaries, which have between them racked up over £40m of losses in recent years, pre-empts the arrival on the board of the two directors proposed by activist 12per cent shareholder Elliott Advisers. Alliance accepted their nomination on the eve of the annual meeting in Dundee when it failed to persuade shareholders to reject the hedge fund's campaign to elect three new directors to the seven-strong board.
This week one of the company's critics ShareSoc, the small shareholder lobby organisation, set up an action group website with a seven-point plan for potential reform, which included disposing of ATS and Alliance Trust Investments. Its deputy chairman Roger Lawson commented: "They are clearly pushing ahead with the agenda they set out at the agm, and the new directors are too late to have much say in it." But he added: "I can understand the logic of it, Brewin Dolphin have lost interest in their share trading service, they are concentrating on their advisory client business." Given that BD had probably been looking to dispose of it for some time, Alliance "probably haven't overpaid", Mr Lawson said.
Katherine Garrett-Cox, Alliance's chief executive, said ATs had "ambitious growth targets", adding: "Over the last couple of months we have received a lot of valuable feedback from our shareholders. We are currently analysing that feedback and we will update shareholders further at our interim results in July." David Nicol, chief executive of Brewin Dolphin said it was "a good result for shareholders, customers and colleagues".
Charles Cade at Numis Securities, which worked with Elliott Advisers during the campaign, said: "We believe the deal is positive for ATS as it had previously been sub-scale with a market share of around 2.2 per cent (or 4.5per cent of the direct market), prior to the deal. In addition, we expect there will be significant synergies available, improving the profitability of the combined entity." He said the investment was small at only 0.44per cent of Alliance Trust's net assets.
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