The growth of Hargreaves Lansdown from a company launched in the spare bedroom of Peter Hargreaves' Bristol home in 1981 to a FTSE 100 business has always been pitched by the founders as a tale of a pair of underdogs from the English regions taking on the London establishment and winning.
Even after growing to be one of the largest businesses in the UK it retained its headquarters in Bristol, but with the news that the board of directors of the company has decided to recommend a £5.4bn takeover offer from a consortium of private equity funds, what does the future hold, and what will the tentative new owners get for their money?
The first thing to point out is that while Peter Hargreaves and Stephen Lansdown remain substantial shareholders in the company (20 per cent and 6 per cent respectively), neither are on the board of directors and neither have committed to selling their shares as part of this takeover offer.
Indeed, the bidders have given them another option: some shareholders can, if they wish, instead of taking cash for their shares, transfer their investment into the private equity vehicle that will buy the company.
In this way they can still benefit from any future rise in the value of Hargreaves Lansdown, despite not being direct owners of the company.
Neither Hargreaves nor Lansdown have indicated at this time if they wish to take that opportunity.
The fact the two founders have a combined 26 per cent stake may also be significant, as under UK company law owners with 75 per cent or more can pass special resolutions about how a company is run, but without the shares of the founders, the new owners cannot reach that level.
While several existing shareholders, including Lindsell Train, have remained silent about their intentions, Lancaster Investment Management has been vocal.
That company owns 1.9mn Hargreaves Lansdown shares and has written an open letter to Hargreaves Lansdown chair Alison Platt, querying the board’s acceptance of the deal, specifically referencing the valuation and the fact that not all shareholders are being given the option to invest in the private equity fund.
James Hanbury, portfolio manager at Lancaster, wrote: “1140p (including final dividend) represents a multiple of [circa]17x earnings per share on our calculation, which is a [circa] 14 per cent discount to AJ Bell's multiple, as the closest listed peer, currently valued at [circa] 20x earnings per share.
"It is [circa] -40 per cent below HL's own 10-year average PE multiple of 28x on our calculation – HL has only sustained at a lower multiple than that implied by the offer for a brief period during the 'Global Financial Crisis' 2008-09, and over the last [circa] two years, since early 2022 when we would argue HL's problems combined with global geopolitical and macro-economic upheaval to affect the valuation multiple.”
Hanbury added in the letter that while the company has problems in a number of areas, they are all within the capacity of the company to fix, and that by fixing them the valuation of the company would rise, therefore in his view it would be better for shareholders if the sale did not happen at this point and the company addressed the issues.
