ALLIANCE Trust has struck a multi-million-pound deal to bolster its under-performing savings arm in the wake of its recent battle with activist investor Elliott Partners.
The Dundee fund manager is set to pay £14 million in cash for Edinburgh-based Stocktrade, the execution-only broking business owned by Brewin Dolphin. Stocktrade will be folded into Alliance Trust Savings (ATS), one of the subsidiaries that has been under fire from US-based Elliott.
Alliance said today the deal would take ATS from break-even to a “meaningful profit” by next year, excluding integration costs. The agreement brings with it a potential 48,000 new customers and £4.6 billion of additional assets.
Rumours of a sale by Brewin Dolphin – which is focusing its business on discretionary fund management – have circulated since the departure last September of Stocktrade managing director Matthew Collis. His duties were taken over by divisional directors Graham Swan and Nicholas Pearson, who will transfer to ATS in senior management roles.
The other 50 or so employees at Stocktrade’s office in Edinburgh are also expected to join ATS when the deal is completed towards the end of the third quarter. It is understood that the broking operation will remain in the Scottish capital, at least in the medium-term.
Alliance Trust, led by chief executive Katherine Garrett-Cox, struck an 11th-hour deal to avoid a showdown with Elliott at the fund manager’s annual meeting at the end of last month.
Disgruntled shareholders have given the board a year to sort out a series of long-standing complaints ranging from loss-making subsidiaries to the trust’s relatively low share price against its net asset value.
Elliott has previously stated that it sees little value in either ATS or its sister subsidiary, Alliance Trust Investments, which manages funds on behalf of third parties.
Garrett-Cox told shareholders at the annual meeting that ATS would seek acquisitions to build up scale and achieve profitability. The platform currently has some £7.2bn under administration, but is targeting £45bn by 2020.
“Our strategy for ATS is to grow the business organically, but when appropriate acquisition opportunities present themselves that fit with our stringent criteria then these will be assessed,” Garrett-Cox said in a statement today.
“The acquisition by ATS of Stocktrade is an example of us putting this strategy into action and pursuing our ambitious growth targets.”
She added that the trust has received “a lot of valuable feedback” from shareholders during the last couple of months, and will give a further update at the interim results in July.
For its part, Brewin Dolphin said the sale of Stocktrade was in line with its strategy to streamline and simplify its operations. The stockbroking business generated a pre-tax profit of £1.3m during the year to September on income of £9.6m. ATS posted an operating profit of £200,000 in the last financial year, but lost £3.3m at the pre-tax level. That was an increase on the previous year’s loss of £1.6m.
Alliance said the addition of Stocktrade will lift business by bringing in new direct customers, intermediary customers and strategic partnerships. The trust says this has the potential to increase assets at ATS to more than £11.5bn, and expand the customer base from 57,000 to 105,000.
David Nicol, chief executive of Brewin Dolphin, said: “The sale of Stocktrade is a good result for shareholders, customers and colleagues. It is consistent with our strategy of streamlining and simplifying our business and will further enhance shareholder value by allowing us to continue to focus on growing our core wealth management service.
“We believe Stocktrade customers and colleagues will benefit from being part of an organisation that will provide further investment and enhancement of Stocktrade’s service.”