TIDMKWG
RNS Number : 8438V
Kingswood Holdings Limited
12 August 2020
12(th) August 2020
KINGSWOOD HOLDINGS LIMITED
("Kingswood", the "Company" or the "Group")
Kingswood announces further US investment
Ø Kingswood takes another giant step in US expansion
strategy
Ø Definitive agreement to acquire majority 50.1% interest in
Manhattan Harbor Capital
Ø Manhattan Harbor Capital to be renamed Kingswood US
Ø Funded the first deferred consideration payment for Chalice,
the business is to be folded into Kingswood US, subject to
regulatory approval
Ø Up to $8.0 million (GBP6.1 million) additional capital to be
invested to support further substantial US organic growth
On 5 May 2020, Kingswood Holdings Limited (AIM: KWG) announced
the formal closing of its acquisition of Chalice Capital Partners
and Chalice Wealth Advisors (together "Chalice"), the planned
increase in Kingswood's interest in Manhattan Harbor Capital
("MHC") from 7% to 20%, and the plan to contemporaneously fold
Chalice into MHC, increasing Kingswood's interest in MHC to above
50%.
Kingswood today announces that, subject to regulatory approval,
it will achieve this majority ownership in MHC.
This will be achieved by acquiring a further 4% of MHC prior to
the fold in of Chalice, taking the pre-combination holding to 24%.
Kingswood has then agreed to contribute its existing Chalice
platform (with its businesses now renamed Kingswood Capital
Partners and Kingswood Wealth Advisors) into MHC at a valuation of
$4.0 million (GBP3.1 million). This is subject to FINRA regulatory
approval. A minimum of $1.1m (GBP0.8 million) additional capital
will be funded into MHC at closing taking Kingswood's interest to
50.1%.
MHC will be rebranded Kingswood US and provides the Group with a
strong, robust and well-capitalised foundation to accelerate its US
growth strategy including best in class, full service operational
and technology infrastructure.
The Company intends to contribute up to $8.0 million (GBP6.1
million) of additional growth equity to further build US
distribution channels through active adviser recruitment and
acquisitions. If all capital is fully deployed, the Kingswood Group
is projected to own approximately 67% of the integrated Kingswood
US financial services platform.
Kingswood US comprises strong Independent Broker Dealer ("IBD")
and Registered Investment Adviser ("RIA") businesses across the US
with key hubs in Atlanta, New York and San Diego. In addition it
incorporates Kingwood Capital Markets, a national Investment
Banking platform now supported by significant regulatory capital to
leverage our expanding distribution channels and drive growth
across equity and debt advisory, capital raising and M&A.
Overview
Completion will be achieved as follows:
-- The Company has exercised its call option and increased its
interest in Kingswood US from an existing 7% to 20% for a
consideration of $950,000 (GBP725,000).
-- It has further acquired an additional 4% interest in
Kingswood US for a consideration of $488,000 (GBP372,000), taking
the Kingswood Group's interest today to 24%.
-- Subject to FINRA regulatory approval, the Company will
contribute Kingswood Capital Partners (IBD business) and Kingswood
Wealth Advisors (RIA platform) (formerly Chalice) into Kingswood US
at a valuation of $4.0 million (GBP3.1 million).
-- Contemporaneous with these contributions, Kingswood will make
a capital injection of $1.1 million (GBP0.8 million) into the
combined Kingswood US business, increasing the Group's interest to
50.1%.
-- Kingswood has further plans to invest up to $8.0 million
(GBP6.1 million) to fund organic growth and recruitment, as
required by the business.
-- Mike Nessim will continue as the Managing Partner of the
enlarged Kingswood US business.
-- On completion, Kingswood US is projected to have circa 180
Authorised Representatives, with key offices in New York, Atlanta
and San Diego.
In summary:
Investment Date $'000 %
Initial investment in MHC May 2019 525 7%
Exercise of option in MHC August 2020 950 13%
Additional investment in MHC August 2020 488 4%
Total Investment to date 1,963 24%
Expected 4Q
Contribution of Chalice * 2020 4,000
Additional investment in Kingswood Expected 4Q
US 2020 1,107
-------
Total Investment at Closing 7,070 50.1%
=======
* Subject to regulatory approval
Further potential capital (post-closing)
Additional Investment in Kingswood US up
to 8,000 17%
-------
Total potential commitment 15,070 67%
--------------------------------------------------- ------- ------
To finance the immediate increase of its interest in Kingswood
US to 24%, cover due diligence and acquisition related expenses,
and fund the first contingent deferred consideration payment for
Chalice, the Company has issued a total of 2,650,000 new
convertible preference shares (the "New Convertible Preference
Shares"), under the terms of its convertible preference share
subscription agreement with HSQ INVESTMENT LIMITED, a wholly owned
indirect subsidiary of funds managed and/or advised by Pollen
Street Capital Limited ("Pollen Street").
The New Convertible Preference Shares represent the seventh
tranche of irredeemable convertible preference shares issued
pursuant to the subscription agreement and as such the total number
of irredeemable Convertible Preference Shares held by Pollen Street
has increased to 21,000,043 shares at an issue price of GBP1
each.
Gary Wilder, Group CEO at Kingswood commented: "We are
absolutely delighted to increase our investment and finalise
agreements to acquire a majority interest in the re-named Kingswood
US. Mike and his team have continually shown that they are highly
talented, best in class operators in the IBD, RIA space and the
recently formed full-service Investment banking business, Kingswood
Capital Markets. We intend to grow this business substantially,
leveraging our growing US distribution franchise. I have no doubt
the capital we deploy will drive exceptional organic growth across
the Kingswood US platform. This reflects the desire of both parties
to develop a highly accretive global platform providing clients
access to investment products and services in major US and UK
markets.
Kingswood's enhanced investment in Kingswood US will further
cement a key, strategic foothold in the largest global wealth and
investment management market, differentiate us from our peers and
support our aspirations of asset linking and cross-selling
services. This investment and intention to fund further growth
equity is a major statement of intent regarding our US expansion
plans and puts us in a strong position to execute our US strategy,
supported by the in-place, operating and management platform. Mike
and his team will oversee acquired entities and focus on delivering
Kingswood US's full-service brokerage, investment advisory and
investment banking proposition to clients. Combined with Derek
Bruton, who joined our US business with the Chalice acquisition, we
now have considerable industry knowledge and experience to deliver
a successful US outcome for the Kingswood Group and I'm greatly
looking forward to working with them."
Mike Nessim, Managing Partner of Kingswood US added: "This
partnership with the Kingswood listed entity is beneficial in so
many ways, and a major advantage in my strategy to boost AUM,
accelerate adviser recruitment, continue to substantially build our
investment banking business nationwide and achieve a significant
foothold in the largest wealth management market globally. I am
incredibly excited to be partnering with the Kingswood Group and
exploring the many opportunities for our integrated broker dealer,
advisory and investment banking platform. The potential is
enormous, and we now have the backing to deliver the next phase of
our ambitious business plan."
Key Transaction Terms
Kingswood has now signed definitive agreements, subject to
regulatory approval, to increase its current 7 per cent stake in
Kingswood US (formerly MHC) to a majority 50.1% stake.
Kingswood US is the owner of Benchmark Investments
("Benchmark"), a FINRA-registered IBD based in New York and
Atlanta, run by Mike Nessim who is also the current controlling
shareholder, providing full service securities brokerage, advisory
and investment banking services through Kingswood Capital Markets
to a broad-based group of individuals and corporate clients.
When Kingswood originally purchased its current 7% Kingswood US
interest in May 2019, it entered into a call option agreement
permitting the acquisition of a further 13%. Kingswood has now
exercised this call option for a total cash consideration of
$950,000 (GBP725,000).
In addition, Kingswood has acquired an additional 4 per cent
interest in Kingswood US for cash consideration of $488,000
(GBP373,000). The Company's total interest in Kingswood US
therefore now stands at 24%.
Kingswood and Kingswood US have also signed a binding agreement,
subject to regulatory approval, for Kingswood to contribute 100% of
its interests in Kingswood Wealth Advisors and Kingswood Capital
Partners to Kingswood US at a consideration of $4 million (GBP3.1
million). These companies were acquired by Kingswood in May 2020
and comprise an IBD and RIA based in San Diego, run by Derek
Bruton.
At closing, Kingswood will also inject a further $1.1 million
(GBP0.8 million) cash into Kingswood US as additional growth equity
to support its expansion strategy. On completion of the
contribution and equity injection the Group's total interest in
Kingswood US will be 50.1%.
Transaction Rationale
As the largest global wealth management market, estimated to be
worth $32.0 trillion (GBP24.4 trillion) as at 2018*, Kingswood sees
the US as a major growth opportunity. The market is growing
significantly year on year, with 9% compound historical annual
growth. By the end of 2025, it is estimated the North American
wealth management market will be worth in excess of $70.0 trillion
(GBP53.4 trillion). Kingswood has been keen to expand investment in
that market for some time.
Kingswood's intention is to drive all of its US growth strategy
through the rebranded merged company, Kingswood US. The growth
strategy envisages organic growth, significant recruitment of
Registered Advisors and acquisitions and a substantial build out of
Kingswood Capital Markets, its investment banking franchise. The
client offering is already proving to be attractive to Registered
Advisors.
Benchmark is in the process of substantially expanding its
platform and anticipates significant AUM and EBITDA growth once
various investment acquisitions are formalised. With the
combination of Chalice, Kingswood US will have circa 180 authorised
representatives managing AUM of circa $1.7 billion (GBP1.3 billion)
operating in a re-branded Kingswood US enterprise.
For the twelve months ended 31 July 2020, Kingswood US reported
unaudited Revenue of $11.2 million (GBP8.5 million), EBITDA of $1.9
million (GBP1.5 million), total assets of $2.7 million (GBP2.1
million) and AUM of circa $500.0 million (GBP381.7 million).
On a pro-forma, unaudited basis for the year ended 31 July 2020,
a 100% consolidated Kingswood US would have generated total Revenue
of $24.2 million (GBP18.6 million), EBITDA of $2.3 million (GBP1.8
million) and AUM of circa $1.7 billion (GBP1.3 billion).
Derek Bruton, CEO of Kingswood US Holdings, said: "We're
delighted to announce Kingswood's additional investment in
Kingswood US. The contribution of Kingswood Wealth Advisors and
Kingswood Capital Partners and the additional capital commitment
provides us with a strong, robust national platform to grow and
expand. We now have the advantage of major hubs in Atlanta, New
York and San Diego operating under a centralised framework and a
strong management team with significant experience in roll-up and
consolidation strategies, which further reinforces the Group's
ability to grow global distribution channels for its dynamic wealth
management platform. "
US Wealth Management Overview
The US retail wealth market is large and remains fragmented. The
total market size is estimated at $22.0 trillion (GBP16.8 trillion)
with close to 315,000 advisors, with IBDs controlling circa $3.0
trillion (GBP2.3 trillion) AUA and employing 59,000 advisors. This
provides Kingswood US with a significant opportunity for
consolidation with many of these smaller broker dealers in
desperate need of a capital injection and support to enable them to
survive against ever increasing regulation costs and
competition.
The overall retail wealth management sector is experiencing
substantial growth due to an aging population with excess
disposable income, overall wealth accumulation, and an increased
demand for financial advice. The independent channels (IBDs, and
Hybrid IBDs/RIAs) are ripe for further consolidation with several
trends creating favourable tailwinds. Smaller IBDs and Hybrid RIAs
are generally poorly capitalised, especially in the face of
additional technology, regulatory and compliance burdens. The
independent advisor model remains very attractive, especially if
affiliated with better capitalised holding company platforms like
Kingswood that can support independent advisors while maintaining
high levels of autonomy and ownership of the client
relationships.
Commenting on Kingswood's US expansion Howard Garland, Partner
at Pollen Street said: "We believe the US wealth management sector
offers compelling opportunities for growth. Mike and his team have
a clear strategy and we are excited to partner with Kingswood to
deliver these goals. Pollen Street has extensive expertise in the
global financial services sector, growing market leading companies
organically and through acquisition. We believe our unique
experience and skillset coupled with our capital commitment will
enable Kingswood to accelerate implementation of their US
strategy."
*Source: PriceWaterhouseCoopers
ENDS
For further details, please contact:
Kingswood Holdings Limited
Gary Wilder / Patrick Goulding
+44 (0)20 7293 0730
www.kingswood-group.com
Peel Hunt LLP (Nomad and Broker)
James Britton / Rishi Shah
+44 (0)20 7418 8900
Greentarget (for Kingswood media)
Jamie Brownlee / Alice Gasson / Ellie Basle
+44 (0)20 7324 5498
Jamie.Brownlee@greentarget.co.uk
Stand Agency (for Pollen Street media)
Cait Dacey
+44 (0) 7973 596 503
pollenstreet@standagency.com
About Kingswood
Kingswood Holdings Limited (trading as Kingswood) is an
AIM-listed (AIM: KWG) international fully integrated wealth
management group, with around 16,000 active clients and circa
GBP4.8 billion of Assets under Advice and Management. It has a
growing network of offices in the UK including Abingdon, Beverley,
Darlington, Derby, Grimsby, Hull, Lincoln, London, Maidstone,
Newcastle, Sheffield (2), Worcester and York with offices in
Johannesburg, South Africa and Atlanta, New York and San Diego in
the US.
Kingswood offers a range of trusted investment solutions to its
clients, which range from private individuals to some of the UK's
largest universities and institutions, including investment advice
and management, personal and company pensions and wealth planning.
Kingswood is focused on becoming a leading player in the wealth and
investment management market through targeted acquisitions in the
UK and US, creating a global business through strategic
partnerships.
About Pollen Street Capital
Pollen Street Capital is an independent alternative asset
investment management company focused on the financial and business
services sectors across both private equity and credit strategies.
The private equity strategy is focused on investing in lower middle
market firms which have the capacity to become leaders in their
field across Europe. Pollen Street have deployed over GBP1.2bn
capital into this strategy over the last 14 years delivering strong
returns throughout. It was established in 2013 and manages GBP2.8bn
gross AUM on behalf of investors including leading pension funds,
asset managers, banks and family offices from around the world.
Pollen Street Capital has a team of 70+ professionals with offices
in London and New York.
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END
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