Ontario Teachers' Acquires UK Wealth Manager 7IM
The Ontario Teachers’ Pension Plan has agreed to buy UK wealth manager Seven Investment Management, as one of Canada’s biggest investors bets on a sector that is rapidly consolidating.OTPP is acquiring 7IM, which was founded in 2002 and manages about $21bn in assets, from Caledonia Investments, the companies said on Tuesday. The deal gives 7IM an enterprise value of about £450mn, according to people familiar with the matter.
The move by OTPP comes as wealth and asset managers are bulking up amid rising costs and downward pressure on fees. However, Iñaki Echave, senior managing director at OTPP, said the fund had spent three years looking to buy a UK wealth manager, pointing to several potential tailwinds for the sector.
“Further flows will be supported by pension reforms, wealth advisors are having increased demand and demographic trends mean the government will continue incentivising savings,” he said.
Following the deal, OTPP will own 90 per cent of the business with 7IM’s management holding the rest. 7IM was bought eight years ago by Caledonia, an investment trust linked to the Cayzer family that made its fortune in the shipping business. Caledonia’s stake in 7IM was valued at £187mn as of March 31.
The Canadian fund already has significant investments in the UK. Last year it bought a 25 per cent stake in SSEN Transmission, a division of Scottish energy company SSE, for £1.5bn. It also holds stakes in London City, Bristol and Birmingham airports.
7IM adds to the more than C$10bn in direct investments OTPP has in the financial services sector and the wealth manager will sit within its roughly C$60bn private equity portfolio. 7IM’s chief executive Dean Proctor will continue to lead the firm after the deal has closed, which is expected to be by early next year.
“We are well positioned for our next phase of growth, and introducing a new investor in Ontario Teachers’ is a natural and planned next step in the development of 7IM,” Proctor said. 7IM was advised by Evercore.
OTPP plans to accelerate 7IM’s expansion, including through potential acquisitions. Based in London and Edinburgh, 7IM runs assets for more than 2,300 advisory firms and 7,000 private clients in the UK.
Echave said OTPP may seek “bigger targets” within UK wealth management. “We have an ambition of building a larger-scale player in the sector . . . it’s a sector that benefits from scale and high-quality service,” he said.
OTPP is betting on a sector where smaller firms have struggled in recent years. One in six asset and wealth managers will go out of business or be bought up by bigger groups by 2027, according to a report by PwC earlier this year, which cited a mix of market volatility, high interest rates and pressure on fees.
OTPP, which has almost C$250bn ($180bn) in assets, manages the pensions of 336,000 teachers in Canada’s most populous province.
The ability of OTPP to invest in public equities alongside infrastructure, venture capital and property has helped it deliver average returns of 9.5 per cent a year since it was set up in 1990.
Its model has been adopted across Canada’s public sector, where it is part of the “maple eight” of pension plan investment managers who collectively manage about $1.5tn.
Justin Cash of Private Equity News also reports 7IM sells majority stake to OTPP in £450m deal:
The Ontario Teachers’ Pensions Plan has taken a majority stake in Seven Investment Management, as the UK wealth market continues to be a hotbed for deal activity.
Caledonia Investments will sell its majority holding in 7IM, the £21bn asset and wealth manager, to OTPP, according to a 5 September statement.
The deal values the UK wealth manager at roughly £450m, according to a source familiar with the situation.
7IM's current management team including chief executive Dean Proctor will continue to run the business.
An information memorandum on a potential sale was circulated earlier in the year, and by late August, four firms were left in the bidding process, a person close to the situation told Private Equity News' sister title Financial News.
Valuations ranged between £400m and £450m, and an outcome was expected in September, they added.
7IM declined to comment at the time. Details of the transaction, which is still awaiting regulatory approval, were not disclosed in the 5 September announcement.
New York-based private equity house Aquiline Capital Partners was in discussions around a potential deal, according to a person familiar with the matter.
Aquiline declined to comment.
Iñaki Echave, senior managing director at OTPP said: "We intend to leverage our sector expertise and flexible capital to accelerate 7IM’s growth organically and through M&A."
7IM was founded in 2002, taking the seven in its name from the number of original founders of the business. It has over 500 staff across London and Edinburgh, and runs portfolios as well as offering platform services for clients.
Caledonia acquired 7IM in 2015, and the firm has since acquired a number of regional wealth managers as smaller firms look to consolidate amid regulatory and cost pressures.
Private equity and overseas investors like OTPP have become increasingly active in the UK wealth space in recent years, seeing an opportunity to cash in as an ageing population looks to take greater control of their finances and pass down assets to the next generation.
On of the biggest deals in recent years was Cinven's majority stake in the network True Potential in 2021, which reportedly valued the business at close to £2bn.
According to Reuters, Evercore advised 7IM on the deal.
Michael Klimes of Money Marketing also reports Canadian pension fund giant buys majority stake in 7IM:
Ontario Teachers’ Pension Plan (OTPP) has said it will buy a majority stake in Seven Investment Management (7IM).
Investment trust Caledonia Investments (Caledonia) announced it has agreed terms for the sale of its stake in the wealth manager.
The transaction is subject to change in control approval by the Financial Conduct Authority and is expected to complete in late 2023 or early 2024.
Caledonia is expected to receive cash proceeds of c.£255m, net of transaction expenses, for the sale of its ordinary and preference shares in 7IM.
The cash proceeds will be held on deposit for future investment.
In its audited accounts as at 31 March 2023, Caledonia’s shareholding in 7IM was valued at £187.1m excluding a further £13.2m which will be invested into the business prior to completion.
7IM was acquired by Caledonia in September 2015 and has grown both organically and through acquisition.
Supported by Caledonia, 7IM has continued to invest in its proprietary platform service and has expanded its direct to consumer offering via multiple acquisitions.
Commenting on the sale, Tom Leader, Caledonia’s head of private capital, said: “In the eight years since our acquisition of 7IM in September 2015, the business has more than doubled assets under management, nearly trebled headcount, and significantly enhanced its revenue and profitability.
“Caledonia’s investment philosophy is to focus on growth over the long term, ensuring that our portfolio companies are well placed for exit when the right time comes for all stakeholders.
“Our investment in 7IM embodies this philosophy and we are delighted with what Dean and his team have achieved during our partnership.
“We thank and congratulate them for their stewardship of the business and wish them every success in their new partnership with OTPP.”
7IM manages approximately £21bn of assets on behalf of more than 2,300 financial advisory firms and 7,000 private clients across the UK.
Founded in 2002, 7IM is headquartered in London and Edinburgh, and has more than 500 colleagues across the UK.
Dean Proctor, chief executive at 7IM, said: “We are well positioned for our next phase of growth and introducing a new investor in Ontario Teachers’ is a natural and planned next step in the development of 7IM.
“I am very excited about our partnership with Ontario Teachers’, who are deeply supportive of the team and the firm’s strategy, and who share the same ambitions, client-centric culture and values as 7IM.
“With the support of Ontario Teachers’, we look forward to starting a new chapter in 7IM’s history.”
OTTP is a global investor with approximately C$250bn in net assets.
Commenting on the deal Iñaki Echave, senior managing director at Ontario Teachers’, said: “We are excited to partner with Dean and his team.
“7IM is one of the highest-quality, fast-growing financial services platforms in Europe and a perfect example of our strategy to make control investments in our high-conviction sectors.
“We intend to leverage our sector expertise and flexible capital to accelerate 7IM’s growth organically and through M&A. We look forward to helping 7IM’s first-class management team to fulfil their ambitious growth plans.”
Earlier today, Ontario Teachers' put out a press release stating it will invest in 7IM, a leading UK wealth manager:
Ontario Teachers’ will back the current management team to continue and boost 7IM’s high-growth story
Ontario Teachers’ has a proven track record of accelerating the growth of businesses in its C$10 billion financial services portfolio
London, UK - Ontario Teachers’ Pension Plan Board (“Ontario Teachers’” or “OTPP”) today announced that it has entered into a definitive agreement to acquire a majority stake in Seven Investment Management (“7IM” or the “Company”), a leading UK wealth manager, from Caledonia Investments plc (“Caledonia”).
7IM is a client centric, technology-driven wealth and investment manager that manages approximately £21 billion of assets on behalf of more than 2,300 financial advisory firms and 7,000 private clients across the UK. Founded in 2002, 7IM is headquartered in London and Edinburgh, and has more than 500 colleagues across the UK.
With its strong proprietary platform, multi-asset investment management capabilities, and advisory credentials, 7IM is ideally placed to continue to provide sector-leading services for UK financial advisers and clients. Ontario Teachers’ is backing 7IM’s current management team and 7IM will continue to retain its existing strategy under the leadership of Chief Executive Officer Dean Proctor.
With UK wealth management a core focus sector for OTPP, this acquisition will provide 7IM’s management team with access to long-term capital and expertise to help execute its growth plans over the next decade, including the pursuit of organic net flows growth and M&A to drive further enhancements to its capabilities and subsequent client propositions.
Iñaki Echave, Senior Managing Director at Ontario Teachers’, said: “We are excited to partner with Dean and his team. 7IM is one of the highest-quality, fast-growing financial services platforms in Europe and a perfect example of our strategy to make control investments in our high-conviction sectors. We intend to leverage our sector expertise and flexible capital to accelerate 7IM’s growth organically and through M&A. We look forward to helping 7IM’s first-class management team to fulfil their ambitious growth plans.”
Dean Proctor, Chief Executive Officer at 7IM, said: “We are well positioned for our next phase of growth and introducing a new investor in Ontario Teachers’ is a natural and planned next step in the development of 7IM. I am very excited about our partnership with Ontario Teachers’, who are deeply supportive of the team and the firm’s strategy, and who share the same ambitions, client-centric culture and values as 7IM. With the support of Ontario Teachers’, we look forward to starting a new chapter in 7IM’s history. Their investment enables us to further enhance our client proposition and accelerate our growth to cement our position as one of the leading vertically integrated wealth managers in the UK, underpinned by our award-winning platform and leading multi-asset investment capabilities.”
Dean Proctor continued: “The team and I would like to thank Caledonia for their tremendous support and patient capital that has allowed us to focus on what is right for 7IM, our colleagues and, most importantly, our clients.”
Financial services is a core sector of focus for Ontario Teachers’, which already has direct investments worth more than C$10 billion in the sector. The Private Capital team at Ontario Teachers’ has made 13 investments in financial services companies globally, 11 of which it has led or co-led. Recent transactions in the sector include Ontario Teachers’ acquisition of Allworth, a fast-growing, full-service independent investment and financial advisory firm; Diot-Siaci, a leading independent European insurance broker operating worldwide; and HomeEquity Bank, a leading Canadian bank offering reverse mortgage solutions.
The transaction is subject to customary closing conditions and regulatory approval.
Wealth management is big business all over the world and with this acquisition, OTPP will own an established ad growing UK wealth manager.
This passage from the Private Equity News article explains the secular trend driving wealth management:
Private equity and overseas investors like OTPP have become increasingly active in the UK wealth space in recent years, seeing an opportunity to cash in as an ageing population looks to take greater control of their finances and pass down assets to the next generation.
The timing of OTPP's acquisition is also interesting.
Why? They know a major global recession lies straight ahead and are betting on 7IM and will help the wealth manager grow through acquisition as markets get roiled over the next couple of years.
Smaller players who cannot grow their assets and don't have the support of a deep pocketed OTPP will be prime targets to acquire.
As far as the price tag OTPP paid, to be sure, it wasn't cheap.
As the FT notes, Caledonia’s stake in 7IM was valued at £187mn as of March 31.
Teachers' forked over £405 mn or about US $509 mn to acquire 90% of 7IM which is now valued at £450mn.
Typically, you don't want to pay more than 2% of AUM for an asset management firm which would value 7IM at $420 mn (2% of 21 billion) and Teacher's share at $378 mn (90% of $420 mn).
[Note: I might be off on my figures here so don't take them at face value. My point is Teacher's paid up for this asset manager for a reason.]
But this asset manager is a leader in the UK's highly competitive wealth management industry and its asset are growing fast:
Moreover, Teacher's has a long history investing and growing companies in the financial services area and they will make a great partner to 7IM's management team which will retain 10% of the asset manager.
Commenting on the deal Iñaki Echave, senior managing director at Ontario Teachers’, said: “We are excited to partner with Dean and his team. 7IM is one of the highest-quality, fast-growing financial services platforms in Europe and a perfect example of our strategy to make control investments in our high-conviction sectors. We intend to leverage our sector expertise and flexible capital to accelerate 7IM’s growth organically and through M&A. We look forward to helping 7IM’s first-class management team to fulfil their ambitious growth plans.”
Below, Dean Proctor, chief executive officer at 7IM, spoke to Proactive London last May about exactly what his firm does.
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