US buyers have been coming for the UK’s top companies, and now they are coming for its bankers. You can see why London-based boutique Robey Warshaw is selling itself. For New York-based buyer Evercore Inc., it’s more a calculated gamble.
Robey Warshaw was set up in 2013 by Simon Robey, a former Morgan Stanley banker, along with UBS Group AG’s Simon Warshaw. The firm’s original mission was to focus on mergers and acquisitions advice with a focus on the UK. It has grown to roughly 20 professionals, with five partners, including former UK finance minister George Osborne. But it’s eschewed expanding into a full-service banking firm with trading and research – like Evercore.
The dynamics of the London stock market over the last two decades have left many firms vulnerable to foreign takeover. Low valuations and risk-averse domestic shareholders have favored sales. In turn, much of Robey Warshaw’s business has come from defending UK firms on the receiving end of such approaches – for example AstraZeneca Plc in its battle with Pfizer Inc. – or from advising bidders such as SoftBank Group Corp. and Comcast Corp. on the acquisitions of Arm Holdings Plc and Sky. It also secured an advisory role on the Microsoft-Activision transaction, where UK antitrust was a key hurdle. So while ostensibly a UK firm, the client list and relationships are far from parochial.
For all the success, you can see the commercial logic of cashing out now. The outlook for UK M&A simply doesn’t look as exciting as it was. Consider the FTSE 100 as a reservoir of possible takeover targets. Many of its constituents are unappealing because they’re low growth, or would be hard to buy because of politics or national security objections, or would face antitrust obstacles. True, there’s likely to be further private equity interest in the midsized firms of the FTSE 250 index. However, the fees there are lower and there are too few initial public offerings to refill the pool of quality companies.
So standing still for a boutique like this isn’t an easy option. A sale secures Robey Warshaw’s legacy and provides it with a bigger network, building on its existing relationships with US clients. And a big payday.
For Evercore to make this work, it needs to be able to expand the global reach of the UK firm’s expertise. At $196 million, the US buyer is paying nearly twice Robey Warshaw’s revenue last year. But in a business whose revenue is so lumpy, any valuation multiple will be somewhat fragile.
The Robey Warshaw top team will be locked in for several years, and must adjust to being employees – albeit very senior ones – with salary and bonus. In addition to the purchase price, Evercore will make performance-based top-ups. That’s what you get when two firms who specialize in valuation for a living strike a deal. The arrangement will help Evercore defend itself against any suggestion it’s overpaid for a people business where the assets can often walk away. But clearly, the risks here remain with the buyer rather than the seller having regrets.
There was, of course, an alternative path for the British firm – grow and diversify the business. That would have required investment in new teams, say, expanding further into health care and technology. Above all, it would mean cultivating a team that could lead that project over the next few decades. The founders’ equity would be diluted over time; they could have gracefully exited one day. That’s a long game, and an arduous one with an uncertain outcome. A US buyer was clearly going to have a good chance of getting a deal. All the same, it’s a shame for the UK that another London stalwart is following Cazenove into the arms of a New York parent, rather than making a go of an ongoing partnership.
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