In its former guise as the Royal Bank of Scotland, NatWest (NWG) made the infamous and catastrophic acquisition of ABN Amro at the wrong price and the wrong time. Almost two decades on, the bank has made its first major piece of M&A since the government finally exited its ownership stake last year. Unlike the ABN Amro move, its £2.7bn deal to buy private equity-backed wealth manager Evelyn Partners has much to commend it strategically, but we have reservations about the economics.
NatWest could have found a better week for disclosing a multi-billion pound wealth manager acquisition. On the day the deal was announced on 9 February, UK prime minister Keir Starmer was almost forced from office. Then, two days later, there was a sell-off of wealth management shares as US company Altruist’s release of an AI tax-planning tool sent fears about technological disruption spreading throughout the market.
The 10 per cent fall in the bank’s share price since the Evelyn announcement shouldn’t be dismissed as mere market froth. There are good reasons for investors to be wary of the mechanics of the deal.
From a strategic point of view, NatWest’s move is a sensible piece of business given concerns about its relative lack of non-interest income compared to rivals. Assuming the transaction completes this summer as planned, the bank’s income from fees will grow by a fifth, with Evelyn’s planners and BestInvest platform lending it much greater appeal to the wider wealth market than Coutts, the private bank already owned by NatWest. The combined group will have £127bn of assets under management (AUM), making it the third biggest UK wealth player behind St James’s Place (STJ) and Quilter (QLT).
Yet there are potential problems ahead for NatWest because of the takeover price and questions about relative returns from the deal versus the return of capital.
The deal’s enterprise value of £2.7bn values Evelyn at 5 times revenue, 3.9 per cent of AUM, and 9.7 times earnings before interest, tax, depreciation and amortisation (Ebitda). As the chart below shows, NatWest hasn’t struck a bargain here:
A key question for investors is how potential returns from the acquisition compute against those from share buybacks. The bank expects the deal’s return on investment (ROI) to be greater than the c. 11 per cent from buybacks by 2028, when revenue synergies are included.
Chief financial officer Katie Murray told analysts there is “no concern around the strength of that return.”
Evelyn generated £179mn of Ebitda in 2025, which gives an ROI of around 8 per cent once expected cost synergies of £100mn are accounted for. However, that Ebitda figure strips out lines from the accounts including significant levels of depreciation and amortisation (£112mn in 2024).
As Shore Capital analyst Gary Greenwood pointed out, these figures “would materially reduce ROI if included.” He cautioned that the deal economics “rely heavily on synergy delivery to justify the price.”
Much depends on the scale and success of revenue and cost synergies. Evelyn delivered AUM growth of more than 7 per cent on a compound annual growth rate (CAGR) basis between 2023 and 2025. Although, anecdotally, one wonders how much that is due to the growth in US-exposed portfolios; can riding the coattails of the AI boom really be good justification for the multiples paid on NatWest’s acquisition?
NatWest now doesn’t expect to confirm another share buyback until its 2027 half-year results, given the deal and a new (lower than expected) £750mn buyback will take its common equity tier 1 (CET1) ratio below its 13-14 per cent target range.
Analysts at Jefferies argued that “the reality is that NatWest shareholders are left with broadly the same cash-flow proposition as before.” They forecast an unaffected dividend per share (DPS) in the short term and a 2 per cent drop in the long term as a result of the deal.
The Evelyn move should be seen in the wider context of banking sector interest in wealth management as a revenue diversifier. Barclays (BARC) and Lloyds Banking Group (LLOY), the latter of which took full control last year of the wealth management joint venture it had with Schroders (SDR), were reportedly also interested in buying Evelyn. Quilter is another company to watch as a potential takeover target.
NatWest needs to drive up fee-based income. Yet deal risk has led us to change our recommendation on the shares. The bank, which recently dropped off our Alpha earnings upgrade momentum screen, reported profit growth of a quarter and raised its return on tangible equity (ROTE) guidance in annual results this morning. See our take on that here.