Mediobanca buys majority stake in Cairn Capital

The Italian investment bank is seeking to expand its asset management capabilities with the acquisition of 51 percent of Cairn Capital, the credit investor and adviser, in a deal that sees the exit of Royal Bank of Scotland.

Mediobanca is set to take a 51 percent stake in credit asset manager and adviser Cairn Capital in a deal that should complete by the end of the year. The parties did not disclose the financial terms of the agreement.

The Italian investment bank will purchase its stake from institutional investors, fully buying out Royal Bank of Scotland, which backed the firm when it was founded in 2004, in the process. 

Cairn’s management will maintain their equity in the firm to affirm the partners’ alignment of interest, Mediobanca’s chief executive officer Alberto Nagel said during the bank’s full-year results call. The remaining institutional investor’s stakes following the sale were not disclosed. 

The deal includes a three-year call option giving Mediobanca the right to buy all or some of the other 49 percent stake, the majority of which is held by management and staff.

Nagel said that in terms of assets under management, the deal boosts Mediobanca’s asset management business by more than a third. 

Expanding its asset management business lines is a key part of the bank’s development plan which has seen it shed assets, internationalise its exposure, boost its core tier-one capital adequacy ratio and reduce its cost of funds.

Like most of the Italian banking sector, Mediobanca has been moving away from capital intensive business lines, though it is ramping up lending following falls in new loans for several years. 

Nagel said that the Cairn stake acquisition will have a negligible impact on its core tier-one capital ratio. He pointed to the firm’s light use of capital and 100 percent fee-earning business model. 

The bank is seeking to build its asset management capacity within alternatives and credit is the ideal fit for the bank in terms of synergies, he said. 

As part of the deal, Mediobanca will provide Cairn with seed capital to grow its credit funds business and increase its distribution capacity. The firm’s multi-asset credit funds and CLO business were the most interesting aspects of Cairn for Mediobanca, Nagel said, along with its real estate advisory practice. 

“The asset class – credit – is very interesting [for the bank] as it is huge, evergreen and coherent with the DNA of Mediobanca,” added Nagel.

The investment bank can also offer Cairn extra capabilities including restructuring and real estate advisory, Nagel said. 

The final price for the stake is subject to earn-out conditions and Cairn’s senior management are tied into key roles for an undisclosed period after the sale, according to Mediobanca. 

Paul Campbell, Cairn’s chief executive, will continue in the same role and the firm will maintain its own separate brand and autonomous investment process, a spokesperson said. Management will remain responsible for operations. 

Cairn has produced €40 million in revenues on average over the last three years. At the end of June it had €2.1 billion in discretionary assets, including pooled funds, management accounts and CLOs with another €3.1 billion in legacy asset management. The firm also had €9.1 billion in assets under long-term advisement, as of 30 June. 

“We are very excited by this partnership with Mediobanca, which we believe is our ideal strategic partner, and with whom we can further develop our position as one of Europe’s leading credit asset management and advisory firms,” said Campbell. “This partnership will ensure the continued enhancement of our business and, above all, our focus on delivering strong investment performance and advice to our clients.” 

Headquartered in London, Cairn also operates in the US through Cairn Capital North America. The US unit was established in 2011 and is based in Greenwich, Connecticut.