The addition of Embark, expected to complete in the fourth quarter of the year, will add GBP35bn of assets under administration and 410,000 clients in the mass affluent space.
Embark’s Rowanmoor SIPP and SASS administration business is not being acquired as part of the deal, the FTSE 100-listed bank said in a statement alongside its first-half results.
Lloyds is making the acquisition for Embark’s online investment platform and to bolster its position in the direct-to-consumer self-directed and robo-advice part of the market.
Moving further into the wealth market with improved digital capabilities, following the 2018 partnership with Schroders (LSE:SDR) to create a financial planning joint venture, Lloyds bosses said they were now increasing the group’s net new money target from GBP25bn to GBP40bn by the 2023 financial year.
Embark, which was apparently only just moving to profitability, will sit under the Scottish Widows brand, while maintaining existing relationships with BlackRock (NYSE:BLK) and Franklin Templeton, who provide investment solutions.
“For Lloyds, this looks a good deal, given multiples paid elsewhere in the sector, which continues to show the consolidation that is ongoing within the wealth management sector,” said analysts at broker Peel Hunt.
Gary Greenwood at broker Shore Capital said, overall, the acquisition “should boost capital light fee income generation”, noting that management are targeting a mid-teens return on investment from the acquisition in the medium-term.
Following a strong run for the shares up to June, before a recent drift lower, he said Lloyds “offers investors significant exposure to a recovering UK economy along with a relatively high return business mix versus mainstream banking peers given its skew towards retail and SME banking”.
Shore Capital currently has a ‘buy’ rating on the shares based fair value for the shares of 55p, “with scope to nudge this higher on roll-forward and to reflect forecast upgrades”.