groups to combine businesses and seek venture capital funding in bid to beat slump
Four of the best-known discount brokers are to combine their books of business and seek venture capital funding to survive the prolonged bear market.
The Isa Shop, With-profits Shop, HCF Partnership and Willis Owen have as yet not finalised a deal but a new company Money Portal Plc has already been established and a website name registered at moneyportal.co.uk.
Investment Week understands that Isa Shop has put together venture capital funding to consolidate the businesses.
The four are looking to add another three discount brokerage by the third quarter of next year with a total target number of eight to 10 by the end of 2003.
The Isa Shop intends to keep the branding of HCF and Willis Owen in order to reassure investors with the two businesses.
Both HCF and Willis Owen have confirmed they hope to make an announcement in the coming weeks, though neither was at liberty to discuss the venture.
Willis Owen makes no secret it is seeking a buyer, a fact confirmed by John Owen, managing director of the business
The discount brokerage market has struggled during the last two and three quarter years of bear markets. Trail commission earned from equity funds has dropped with UK equity funds, the best-selling equity market, having lost an average of 32% in the three years to 2 December, according to Standard & Poor's. The average Europe ex-UK equity fund has fallen 30.4% in that time compared to a loss of 71.25% in the average technology & telecommunications fund, which prior to March 2000 was one of the strongest fund lines sold by discount brokers.
Owen said the discount brokerage market was ripe for consolidation as businesses had similar cost bases and, once client lists were combined, merged businesses would see significant economies of scale. He added: 'Consolidation is the logical way forward. Every discount broker has broadly the same operating costs.'
It is a point reiterated by Mark Dampier, investment director at Hargreaves Lansdown, one of the groups that has spoken to Willis Owen but decided against making a bid. Dampier said given the depressed level of fund sales, impacting revenues at Hargreaves, many of the smaller discount brokers are struggling.
Currently, Hargreaves Lansdown leads the market by some way with a direct mail list of over one million, although it is a far more diversified business than most discount brokers with pensions, brokerage, and Vantage Isa fund supermarket arms, the last of which has £1.6bn in assets under management.
Best Invest claims a list of 50,000 and £1bn under management, while Chelsea Financial Services, by comparison, boasts a client list of around 80,000, or 120,000 including spouses, and assets under management of around £577m. Willis Owen claims around 90,000 clients with 80,000 names on the list added in the last three years due to the success of Isa guides run in conjunction with national newspapers.
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