British asset manager Rathbones (RAT.L) said on Tuesday it had agreed to acquire the UK wealth business of Investec (INLJ.J), (INVP.L) in an all-share deal that values the unit at 839 million pounds ($1.04 billion).
The tie-up is the latest in a string of deals in the high-growth sector as firms look to scale up in the face of higher regulatory and technical costs.
Rathbones CEO Paul Stockton said the sector was "ripe for consolidation", adding that recent volatility in the wider financial sector - including the failure of some U.S. regional lenders and the emergency rescue of giant wealth manager Credit Suisse - could present opportunities.
"There's inevitably been a little bit of a flight to quality in some areas in the UK," Stockton said on a media call, adding the movements had not been material for either business so far.
"If we can attract flows on the back of our reputation, brand and combination, then of course we will."
Investors reacted positively to the deal, which will create a wealth manager with approximately 100 billion pounds of funds under management.
Rathbones shares were up 2% in early trading, while London-listed shares in Investec were up 3%.
"The bigger you are, the better you can invest," Investec CEO Fani Titi said on a media call, adding that the bigger business would be able to better attract talent and operate efficiently.
Under the terms of the deal, which excludes Investec's Swiss and International wealth operations, Rathbones shareholders will own 58.75% of the combined group and hold 70.1% of the voting rights.
Investec will hold a 41.25% stake in the combined firm - with voting rights limited to 29.9% - and enter into a long-term strategic partnership with Rathbones.
"We see this as an ambitious but logical step for Rathbones to help secure its position as one of the leading franchises in UK wealth management," analysts at RBC said in a note.
The companies said they would target annual savings of at least 60 million pounds, and the deal was expected to be accretive to underlying earnings per share in its first year.
Investec CEO Titi said the combination would entail job losses, but that the management team would try to keep these to a minimum.
Rathbones aims to achieve a double-digit post-tax return on invested capital in the third full year following completion.
The deal, subject to regulatory approvals, is expected to be completed in the last quarter of 2023.
