SCOTTISH financial technology star Nucleus Financial is set to be acquired by a rival in a deal which values the investment platform specialist at around £145 million.
Directors of Edinburgh-based Nucleus have recommended a 188p per share cash offer for the firm made by private-equity backed James Hay.
The bid values the stake of Nucleus founder David Ferguson at around £1.7m. It provides a reward for his decision to take the risk involved in leaving corporate life to start a business. Nucleus has been able to capitalise on big changes in the pensions and long- term savings world.
The company provides platforms that advisers can use to help manage their clients’ investment portfolios. It has built a strong position in a market that is set for long term growth as people are required to take more responsibility for saving for retirement.
James Hay faced competition from other potential bidders for Nucleus.
However, the prospect of the takeover will raise concerns about the impact on jobs in Scotland.
Nucleus has around 250 employees.
James Hay said there could be a reduction in headcount in the central and headquarters functions of the enlarged group when the businesses are combined. The bidder said it does not envisage any change in the locations of Nucleus’ offices. Nucleus recently moved into Glasgow after acquiring a business run from the city.
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The prospect of the takeover of Nucleus will be regarded with sadness by some in Scotland following the acquisition of a range of other stock market-listed firms based in the country in recent years.
Last week temporary power specialist Aggreko said it had received a bid approach from a consortium of two private equity outfits, which valued the Glasgow-based company at about £2.25 billion.
However, South African financial services heavyweight Sanlam has been in a strong position to influence developments at Nucleus for some time.
Sanlam provided early support for Nucleus and retained a controlling 52% stake following the flotation of the business on the Aim exchange in 2018.
The announcement of the recommended offer by James Hay states: “The process behind the Acquisition was initiated by Sanlam.”
Sanlam has given a binding irrevocable undertaking to vote in favour of the acquisition. Mr Ferguson and other Nucleus board members have made similar commitments.
READ MORE: Scotland wins big vote of confidence from pensions and investment giant
Mr Ferguson said the takeover should pave the way for growth to accelerate at Nucleus, which he started in 2006.
The company managed to make progress amid the market turbulence triggered by the coronavirus crisis. Assets under administration on its systems increased by 7.8% in the year to January 31, to £17.4 billion.
However, Mr Ferguson said: “Becoming part of this enlarged group gives us a key role in a much bigger story where we can create a leading independent platform of scale.”
The expectation is that the enlarged group will be in a stronger position to make the investment required in areas such as technology and product development in what is an increasingly competitive sector.
Finance sector heavyweights such as Standard Life and Aegon UK have invested heavily in growing platforms businesses.
James Hay, which has offices in Salisbury, specialises in the provision of self-administered pension plans and related technology platforms. It has £27.9bn under administration meaning the enlarged group will have around £45bn AUA.
The company said it attaches great importance to the skills, experience and continued commitment of Nucleus’ management and employees. It is thought the bulk of Nucleus employees work in technology development and customer services.
James Hay is backed by the Epiris private equity firm. London-based Epiris bought into James Hay in 2019 in the expectation it could use it to consolidate businesses in the evolving pensions market and related financial technology operations.
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Mr Ferguson started Nucleus with Philip Martin, with whom he worked at Scottish Life International. He previously worked for Ivory & Sime.
The takeover is subject to approval by Nucleus shareholders.
Nucleus Financial shares closed up 12%, 20p, at 187.5p yesterday.
They sold for 132.5p in December, before Nucleus said it was in talks regarding four potential bids for the firm, including one from James Hay and Epiris.
Three of the four potential bidders then said they did not intend to make an offer for Nucleus.
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James Hay plans to transfer responsibility for the enlarged group’s underlying platform administration services platform technology to FNZ, which has a base in Edinburgh.
“It is envisaged that a material number of Nucleus' employees, principally within the technology and platform operations functions, will transfer to FNZ at a time that is aligned to the migration programme, over the medium term,” said James Hay.
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