ABN Amro: Hauck Aufhäuser Lampe Acquisition a Good Fit at a Fair Price

Narrow-moat ABN Amro announced the purchase of German private bank Hauck Aufhäuser Lampe on May 28. The purchase will strengthen ABN Amro's existing presence in the German wealth management market. We estimate the deal will add around 5% to ABN Amro's earnings, including synergies. We tend to view wealth management as a moaty business and HAL's mid-double-digit historical returns on equity suggest a competitive advantage. ABN Amro's revenue mix is heavily skewed to net interest income, which can be volatile and capital-intensive. The deal will lead to a modest increase in the contribution of stable, low-capital-intensity fee income to ABN Amro's revenue mix. ABN Amro will use some of its excess capital to fund the cash purchase price of EUR 672 million. The purchase price is roughly equal to HAL's tangible book value and around 10 times its presynergy earnings. If ABN Amro can deliver its targeted EUR 60 million of synergies, it would imply a 5 times price/earnings multiple. We think these are modest multiples for an acquisition that will immediately enhance profitability and is an excellent strategic fit.