London-listed investment trust Caledonia Investment’s acquisition of Seven Investment Management (7IM) is likely to be its last in the wealth management sector for now, Caledonia Investment head of unquoted pool Duncan Johnson told Private Equity International.
“I can’t see that we’ll do another investment in this sector in the short to medium term,” Johnson said. “We look for uncorrelated assets and it doesn’t make huge strategic sense to double up.”
Caledonia is acquiring the London-based wealth management company for £100 million ($158 million; €139 million), of which it will provide about £75 million of equity, with the remainder provided by senior debt that will be put into the capital structure of the business, Johnson said. Caledonia has underwritten the loan and the senior bank is currently being selected, he said.
7IM was established in 2002 and at the end of April reported £9.5 billion of assets under management and administration. The wealth manager offers a discretionary investment service, asset management and fund investments, according to its website. “The plan is to do more of the same. All sides of the business are growing nicely,” Johnson said.
Caledonia competed with private equity firms Anacap, Corsair Capital and Graphite Capital to acquire 7IM, according to reports. When asked how Caledonia secured the deal, Johnson said: “There was competition. It was a culture fit, and we were competitive with price and structure. We were offering something different,” he noted in reference to its longer term, lower leverage model that allows it to draw a running dividend, and its “hands with” approach.
Caledonia's private equity business differentiates itself by occupying the middle ground between directing management like a typical PE firm and taking the hands off approach of a family office investor, Johnson said. It holds assets for seven to 10 years.
Growth in the wealth management sector will be driven by a change in UK pension legislation that is expected to result in more money flowing to wealth managers, an ageing ‘baby-boomer’ generation, and the introduction of the UK regulator's Retail Distribution Review, Johnson said.
“There is a movement to quality within wealth management and a decrease in the number of companies. We are part of the consolidation of the sector,” Johnson said. “7IM benefits from short, medium and long term drivers of growth and we are long term, stable shareholders and that is what they are looking for, for their clients.”
Caledonia’s “unquoted” pool of capital has £600 million of assets under management and makes one to two new investments a year, targeting established management teams in businesses that require £50 million to £100 million of equity, Johnson said.
In the last four years it has made five investments, including in caravan park operator Park Holidays UK and residential care operator Choice Care, Johnson said. Graphite Private Equity sold Park Holidays to Caledonia in 2013 for £172 million, PEI reported earlier.
Caledonia is listed on the London Stock Exchange with net assets of £1.6 billion. It invests in quoted and private companies and fund of funds. Its unquoted business is financed by its investments and realisations made from an initial pool of capital provided by the Cayzer family’s shipping fortune. The family retain a 48.5% stake in the trust.