Royal Bank of Canada offers $2.1 billion for UK's Brewin Dolphin

© Reuters. FILE PHOTO: A sign for the Royal Bank of Canada in Toronto, Ontario, Canada December 13, 2021. REUTERS/Carlos Osorio

By Huw Jones and Nichola Saminather

LONDON (Reuters) -Royal Bank of Canada became the latest Canadian lender to expand overseas with a 1.6 billion pound ($2.1 billion) all-cash offer for U.K.-based wealth manager Brewin Dolphin (OTC:BDNHF) on Thursday.

The bid, representing a 62% premium to Wednesday's closing price, sent the target's shares surging 61%.

The UK is a key growth market, and the combination would make RBC Wealth Management the No.3 wealth manager in Britain and Ireland, Canada's biggest bank said.

RBC is offering Brewin shareholders 515 pence per share, compared with Wednesday's closing price of 318 pence, valuing the firm at 2.8% of its 55 billion pounds in assets under management (AUM) as of Feb. 28.

Brewin's shares hit a record high of 511 pence at 1445 GMT, doubling from their lowest in more than a year reached earlier this month. Royal Bank shares slipped 0.1%, compared with a 0.4% gain in the Toronto stock benchmark.

Brewin Dolphin directors have unanimously backed the deal, which is expected to complete at the end of the third quarter, RBC said.

The premium "demonstrates the attractiveness of the UK wealth market, with long-term, stable income streams and the potential for growth and higher operating margins", Jefferies analysts wrote in a note.

It is higher than the 2.4% of AUM that rival Bank of Nova Scotia paid for Jarislowsky Fraser and the 2.2% that Toronto-Dominion Bank paid for Greystone Capital Management, both in 2018, said Kingwest & Co Portfolio Manager Anthony Visano.

But demand for such businesses has also increased recently, with banks and asset managers snapping up wealth management firms and direct investing platforms, using economies of scale to cut costs.

RBC Chief Executive Dave McKay had said on its latest earnings call in February the bank was in "active dialogues" related to its search for commercial and wealth businesses in the United States and Europe.

Its wealth management unit accounted for about 28% of total revenues in its first fiscal quarter, although the bulk of that came from Canada and the United States.

Canada's Big Six banks, which hold about 90% market share at home, have been expanding outside their home markets. RBC's bid follows deals by TD to acquire First-Horizon Corp and Bank of Montreal's purchase of Bank of the West, both in the United States.

Lloyds Banking Group (LON:LLOY) last year bought wealth management platform Embark, while JPMorgan Chase (NYSE:JPM) bought Nutmeg for 700 million pounds.

($1 = 0.7618 pounds)