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European Wealth Group Ltd: THE INVESTMENT CASE

European Wealth Group scaling up with acquisition of Newbridge

"It will empower us to benefit from increased scale, enhance our product proposition and leverage operational efficiencies to attract more clients, and significantly increase our AUM."
Merger
INVESTMENT OVERVIEW: EWG The Big Picture
The acquisition more than doubles assets under management

European Wealth Group Limited (LON:EWG) is almost unrecognisable from the company that started the year with a convertible loan repayment hanging over its head.

June's fund-raising took care of that, with the company receiving a £9.3mln cash injection that saw shareholders Astoria and Kingswood subscribing for shares.

Chief executive John Morton handed over the baton to Marianne Ismail in September, while in October it announced a major acquisition and a change of name to Kingswood.

The company being acquired is KPI US Holdco, but this is where it gets complicated, so pay attention.

Simultaneous to European Wealth Group (EWG) acquiring KPI US, the acquired company is buying up the business of Newbridge Securities Corporation and Newbridge Financial Services Group, a US-based national broker-dealer and registered investment adviser platform.

The term “transformational” is bandied about a lot these days but the description is apposite in this case, as the acquisition will bring into the EWG fold more than 220 professional advisers and associated broker-dealers, more than 12,000 clients and some US$1.7bn of assets under management (AUM).

That will boost AUM under management in the combined group to more than US$4bn and take the client list above 20,000.

The board believes that once integrated into the larger company, to be renamed Kingswood, the enlarged platform will benefit from significant operational synergies, exploiting its global distribution power to retail and institutional investors while providing regulatory efficiencies across the group.

It will benefit from economies of scale through integrated product development and technical support.

Ah yes, the name change …

The acquisition brings with its representatives in 46 offices across the US, including a strong presence in key financial centres, such as New York.

As such, the name European Wealth is no longer appropriate.

The company even spelled centres as “centers” in the stock market announcement, getting into the mid-Atlantic spirit; it will be saying “transformative” rather than “transformational” next …

"We are ambitious to grow organically and energetically by acquisition. This is our first key step to deliver a profitable and differentiated strategy in the financial services arena,” said company boss Marianne Ismail.

"Newbridge presents a unique opportunity to invest in an established, well-positioned company that significantly increases our global footprint by gaining immediate access to the largest wealth management market in the world. We are confident that the proposed acquisition will allow us to accelerate our growth path towards our stated ambition of becoming a global vertically integrated financial services platform,” she added.

Leonard Soskolow, chairman of Newbridge, and Thomas Sasolaro, chief executive of Newbridge, said in a joint statement: "We believe that the proposed combination of our two businesses represents an exciting opportunity to grow a truly global business focused on delivering innovative products to our clients. European Wealth benefits from supportive shareholders, and with their backing, we can aim to rapidly build our product offering and global footprint, and ultimately, enhance our returns to shareholders."

A timely boost to organic growth

The acquisition should add a turbo boost to a company that was already doing well.

AUM at the end of June had grown to £1.7bn from £1.5bn at the end of 2016.

Group revenue in the first half of the year rose to £5.2mln from £4.4mln in the same period of 2016.

Interestingly, in the results statement chairman Kenneth “Buzz” West said: “In recent months we have continued to develop the business by focusing more on organic growth than acquired growth.”

Well, that plan soon went out the window but that probably says more about the nature of the opportunities offered by the acquisition than management's ability to stick to its game-plan.

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Merger
October 11 2017
"It will empower us to benefit from increased scale, enhance our product proposition and leverage operational efficiencies to attract more clients, and significantly increase our AUM."

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