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Warburg Pincus rescues £1.8 billion merger of two British investment firms

Updated: 01 June 2020

According to Sky News, Warburg Pincus just invested over £250 million to facilitate a merger that will create the fourth-largest wealth management firm in the UK. The private equity firm came on board to rescue the merger between Tilney and Smith & Williamson, which was first announced in September 2019.

The merger was in danger of collapsing after the UK’s Financial Conduct Authority (FCA) disapproved of the combined entity’s capital structure. The financial services regulator had informed the two firms that they had inadequate capital to merge, which almost ended the merger.

According to the regulator, the two firms had to increase their share capital by at least 200 million so that the merger, which is structured as an acquisition of Smith & Williamson by Tinley, could proceed.

The deal is set to create the fourth-largest UK investment manager based on their AUM, which currently stand at £45 billion. Sources familiar with the deal said that Warburg had been in discussions with the two wealth managers for several months before sealing the deal.

Warburg is likely to become the second-largest shareholder in the combined firm, which is set to boost the wealth management firm’s credibility going forward. The merger comes at a crucial time for investment management outfits that are relying on scaling to boost their earnings as margins within the sector shrink.

Wealth managers are facing stiff competition from Robo-advisors and other new entrants that pose a significant threat to legacy business models. Most investment firms have been forced to innovate so as to compete with services such as Robinhood, which offer free-free stock trading that appeal to younger consumers.