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Close Brothers Group plc (LSE:CBG) has announced the sale of its wealth management division, Close Brothers Asset Management ("CBAM"), to funds managed by Oaktree Capital Management, L.P. ("Oaktree") in a transaction valued at up to £200 million. The deal represents a strategic shift for Close Brothers as it looks to strengthen its capital base and focus on its core lending business.
Transaction Overview
The agreed sale price includes a contingent deferred consideration of £28 million, structured as preference shares. This deal reflects a multiple of 27 times CBAM's statutory operating profit after tax for the 2024 financial year. Upon completion, Close Brothers is expected to receive approximately £172 million in upfront cash proceeds.
The transaction is anticipated to conclude in early 2025, pending the approval of customary regulatory bodies. Close Brothers plans to retain the cash proceeds to bolster its capital base, enabling the company to better navigate the current volatile economic environment.
Strategic Benefits
Close Brothers Asset Management is a well-established UK wealth management franchise, recognized for its robust performance, steady net inflows, and substantial growth potential. However, Close Brothers acknowledges that significant investments would be required to unlock CBAM's full potential in a consolidating market. This would involve continued capital infusion to fuel both organic growth and acquisitions.
By selling CBAM, Close Brothers secures a competitive valuation and gains the opportunity to allocate its resources more efficiently toward its core lending business. The transaction allows Close Brothers to streamline operations and focus on areas where the company sees promising growth and increasing customer demand.
Oaktree’s Growth Plans for CBAM
Under Oaktree’s ownership, CBAM will have the opportunity to accelerate its growth strategy. Oaktree recognizes CBAM’s potential to evolve into a leading UK wealth management firm and intends to provide the necessary capital to boost profitability and expand market presence. This aligns with Oaktree’s long-term vision of building CBAM into a wealth manager of significant scale.
Impact on Close Brothers
Post-transaction, Close Brothers will remain committed to its strategic objectives for its retained businesses. Key priorities for the group include:
- Enhancing its capital position through previously initiated measures.
- Preserving its customer-centric approach, long-term relationships, and expertise.
- Prudent financial management, with a focus on maintaining strong capital, liquidity, and funding positions.
- Continuing its disciplined approach to pricing and underwriting to ensure the quality of its loan book.
- Implementing cost management initiatives, including those launched in March 2024.
- Exploring new growth opportunities and revenue streams, particularly in its Winterflood business.
Close Brothers emphasizes that the sale will allow the group to concentrate on growing its core businesses and resuming its track record of earnings growth and attractive returns.
Use of Proceeds
Close Brothers expects to receive £172 million in cash upon the deal's completion, which will be allocated as follows:
- An upfront cash payment of approximately £146 million from Oaktree.
- A dividend of £26 million to be paid by CBAM to Close Brothers prior to completion, subject to regulatory capital requirements.
- A further £28 million in deferred consideration in the form of preference shares.
The group intends to retain these proceeds to strengthen its balance sheet and improve its ability to pursue future growth opportunities.
