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Royal Bank of Canada (RY) Announces Its Buyout of Brewin Dolphin

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Royal Bank of Canada (RY - Free Report) recently announced its acquisition of U.K.-based Brewin Dolphin Holdings PLC for C$2.6 billion (approximately US$2.1 billion). The transaction, subject to shareholders’ approval and receipt of all regulatory consents, is anticipated to close by the end of third-quarter 2022.

The deal is an all-cash offer for the entire issued and to-be-issued share capital of Brewin Dolphin for 515 pence per share. The premium paid for the acquisition represents the attractiveness of the U.K. wealth market, which offers long-term, stable income streams, and the potential for growth and higher operating margins.

Brewin Dolphin is an independent provider of discretionary wealth management in the U.K. and Ireland, with more than 30 offices and assets under management worth £59 bn as of Dec 31, 2021. The company delivers superior client service and robust investment performance through its impressive growth and innovations.

The acquisition will help Royal Bank of Canada’s growth in the U.K. market, making its wealth management business the third largest in the U.K. and Ireland. The company is already a market leader in Canada.

Financial Details

The acquisition of Brewin Dolphin is expected to result in approximately 40 basis points reduction in RY's Common Equity Tier 1 ratio. Further, adjusted earnings per share of the company are expected to accelerate 1% in the first year following the acquisition, excluding the benefit of future revenue synergies.

Over the medium-term horizon, Royal Bank of Canada believes that its combined wealth management business in the U.K., Ireland and Channel Islands will likely generate revenues at a CAGR of 9%. It also expects to achieve adjusted profit before tax of C$500 million, which includes the benefit of cost and revenue synergies. The merger can lead to a double-digit internal rate of return, excluding the benefit of future revenue synergies.

The combined company aims at increasing the depth and breadth of its services and becoming an integrated wealth management provider to private and institutional clients. Royal Bank is set to expand its distribution channels by leveraging its global presence.

Canada's big six banks, which hold about 90% market share, have been expanding outside their home markets. Royal Bank became the latest Canadian lender to expand overseas with the acquisition of Brewin Dolphin. Other than RY, recently The Toronto-Dominion Bank (TD - Free Report) signed an agreement to acquire U.S-based First-Horizon Corp (FHN - Free Report) for $13.4 billion in cash or $25 for each FHN common share.

Toronto-Dominion anticipates the FHN acquisition to close by Nov 1, 2022. The buyout is subject to customary closing conditions, including approvals from First Horizon's shareholders, and the U.S. and Canadian regulatory authorities.

Over the past six months, shares of RY rallied 9.8% compared with 7.3% growth of the industry.

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Currently, Royal Bank carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.


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