Sorry, the last lot of directors messed up. They underinvested in the business and lost our once-mighty competitive advantage. Our co-founder was half-right when he called the place a “shambles”. Therefore, we’re surrendering to a private equity takeover bid. Yes, the offer is pitched at half the peak share price from the glory days. And, yes, we know our day job involves promoting the merits of investing in listed companies. But what can you do?
That, obviously, is not precisely how the board of the investment platform Hargreaves Lansdown, led by chief executive Dan Olley and chair Alison Platt, explained why it is recommending acceptance of a £5.4bn bid from buyout titan CVC, Nordic Capital, and a subsidiary of the Abu Dhabi Investment Authority. But the meaning wasn’t wildly different.
There was a long lament about “an increasingly competitive environment”, falls in client retention, “friction and gaps in the digital experience and certain aspects of the client value proposition, which have remained largely unchanged since 2017” and the need for investment to address “highly manual processes and legacy technology systems”. The catch-up spending started in 2022 but the programme will take until 2027. Given “the inherent level of uncertainty and delivery”, the board thinks it’s best to back a cash bid at a 54% premium to where the shares stood before the fun started.
Peter Hargreaves – he of “shambles” and “useless” remarks aimed at the reign of former chief executive Chris Hill and former chair Deanna Oppenheimer – is backing the bid, and will roll over half his £1.07bn stake into the bid vehicle. Stephen Lansdown, the other co-founder, and also long-departed from a business launched in 1981, will take cash of £309m for his entire 5.7% stake. Given that duo own a quarter of the shares between them and want the deal, it was probably unrealistic to think the board would do anything other than recommend.
All the same, the surrender looks meek. OK, Hargreaves Lansdown is not the all-conquering marketing machine of old – platforms such as AJ Bell and Abrdn-owned Interactive Investor provide nimbler competition these days. And its role as a chief cheerleader for the fallen fund manager Neil Woodford (an affair handled terribly by Hill) was damaging.
But it is still the market leader in DIY investment platforms by a distance and a decline in the asset-retention rate from 91.4% to 88.5% between 2021 and 2024 does not suggest catastrophe. If that is the size of the damage when the company was shooting itself in the foot, one could equally argue that the famed “stickiness” of retail investors lives on. The business has 1.9 million customers, with savings and investments of £155bn, and made underlying pre-tax profits of £456m, up 4%, on Friday’s simultaneously announced full-year numbers. It’s not a bad position from which to attempt self-improvement.
While a 54% takeover premium looks superficially fat, the terms imply Hargreaves Lansdown would be departing at a so-so multiple of 16 times earnings. For a board that still expresses full confidence in the turnaround strategy, never mind the execution risks, that is nothing to shout about. If Messrs Hargreaves and Lansdown weren’t wanting to accept, the view of fair value here might be different.
Note the views of analysts at two City houses. Jefferies reckons the bid will succeed but “we think there is greater value in HL in the medium term.” Investec, which had a target price of £12.15 compared with the bid price of £11.40, thinks a rival offer is now less likely because Hargreaves has given an irrevocable undertaking to accept, “but there is significant strategic and financial logic for a large UK financial institution or international competitor to look at HL”.
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Quoted companies should have more ambition. This exit would be limp.