Close Brothers to sell wealth management arm to Oaktree

Close Brothers Group plc has agreed to sell its wealth management arm, Close Brothers Asset Management (CBAM), to Oaktree Capital Management (Oaktree). The deal, which is expected to close in early 2025, values CBAM at up to £200 million and is a significant move as Close Brothers seeks to strengthen its financial position amidst scrutiny from the Financial Conduct Authority (FCA) regarding its vehicle loan practices.

The transaction will see Close Brothers receive an upfront cash payment of approximately £172 million, which includes £146 million from Oaktree and a £26 million dividend payable by CBAM before completion. In addition, £28 million of contingent deferred consideration will be issued in preference shares, which will be redeemable based on performance and other factors. The total equity value represents 27 times CBAM’s statutory operating profit after tax for the 2024 fiscal year.

The sale will boost Close Brothers’ capital base, raising its Common Equity Tier 1 (CET1) ratio by around 100 basis points. The funds will help Close Brothers navigate the current economic uncertainties and allow the firm to refocus on its core lending businesses.

Strategic reasons for the sale

Close Brothers has faced challenges recently, including regulatory scrutiny from the FCA in its review of the motor finance industry. As the company faces a complex environment, the decision to sell CBAM was part of a broader strategic review.

By selling CBAM, Close Brothers aims to simplify its operations, focusing on its core banking services. The proceeds from the sale will provide a financial cushion, allowing the company to continue growing its core lending operations. According to Mike Biggs, Close Brothers’ Chairman, the sale is a key step in their strategy to strengthen their balance sheet and prioritise the company’s main business lines.

“CBAM has delivered impressive growth over the past years and has developed into a strong franchise. Under the new ownership, it will benefit from additional resources to accelerate its growth trajectory,” Biggs noted.

Growth potential for CBAM under Oaktree

CBAM has grown into a strong franchise, with healthy inflows and significant potential in the wealth management sector. Under Oaktree’s ownership, CBAM is expected to accelerate its growth through additional investment. Oaktree intends to build a vertically integrated wealth management business, expanding CBAM’s service capabilities and technological infrastructure to become a leading player in the UK market.

Oaktree’s Managing Director, Federico Alvarez-Demalde, expressed confidence in the transaction, noting that Oaktree will provide CBAM with the resources necessary to enhance its profitability and scale in a consolidating market.

“The business is well known for its client centric culture which we absolutely intend to preserve and nurture as we invest in its service capabilities and technology to build a vertically integrated UK wealth business of scale. In the coming months we will bring to bear our extensive operational experience in the sector to work closely with Close Brothers and ensure a successful separation and transition of the business,” he commented.

Impact on Close Brothers

Post-transaction, Close Brothers will retain the proceeds to bolster its capital reserves and focus on its key strategic objectives. The sale aligns with the company’s goal of improving its financial standing, particularly in a challenging market environment.

With the transaction set to complete by early 2025, subject to regulatory approvals, Close Brothers aims to enhance its financial flexibility. The group will continue exploring diversification opportunities, especially within its securities trading division, Winterflood, and will remain focused on prudent financial management.