2019 and 2020 were busy years for corporate activity in the financial administration and wealth management platform sectors. In this market update, we profile the status of key players in the sector poised for further developments in 2021.
Recent activity in the wealth management and fund administration platform arena has been driven by a number of factors including:
- strong wealth management platform operating performance due to inflows from big four bank platforms post Royal Commission (HUB24 and NetWealth);
- M&A forming core part of growth strategy for a number of participants (e.g. HUB24); and
- divestments triggered by need to reduce debt or bidders capitalising on weak share price performance on back of target’s operational and financial challenges (e.g. non-binding offers for Link Group, IRESS acquisition of OneVue).
Further activity over coming months is anticipated, as key players refine their market positioning and set a pathway for sustainable growth.
Takeover offer for Link Group
Ongoing market interest in Link Group
The share price of Link Group dropped significantly in late May 2019 upon a release of a trading and earnings update, warning that Operating NPATA would be lower than prior year, attributing this to a number of factors including Brexit impact on European operations and regulatory changes in the superannuation administration sector. This was compounded by disclosure in June 2019 that the UK Regulator (FCA) was investigating recently acquired Link Fund Solutions’ role as authorised corporate director in respect of a collapsed UK Fund.
Efforts to restore investor confidence with a management restructure and enhanced disclosure around its 44% investment in PEXA (an e-conveyancing business owned by CBA, Morgan Stanley Infrastructure and Link) failed to materially improve the share price and on the 12th of October 2020, a consortium including Pacific Equity Partners and the Carlyle Group announced an indicative proposal to acquire 100% of the shares in LNK for consideration of $5.20/share, implying an enterprise value of A$3.5bn and a multiple of 12.0x trailing EBITDA.
A revised proposal was received from the consortium on 28 October 2020 at a cash price of $5.40 per share with a proposal for a scrip alternative allowing shareholders to take an indirect interest in Link’s PEXA holding. On 7 December 2020, SS&C Technology Holdings (NASDAQ-listed global provider of investment and financial software-enabled services and software for the financial services and healthcare industries) made a non-binding indicative proposal to acquire Link for $5.65 per share. SS&C were granted access to due diligence shortly thereafter.
Link advised the market on 4 January 2021 that the SS&C offer had been withdrawn and that Link would explore a trade sale of its interest in PEXA later in January 2021. On 21 January 2021, LNK released its 2021 half-year update with results above guidance and Macquarie Capital and UBS (bankers to Link) kicked off talks with potential bidders for Link’s 44.2 per cent stake in PEXA. Bidders are rumoured to include Partners Group, MIRA and KKR. LNK shares closed at $4.83 on 28 January 2021.
HUB24 — new collaborations for expansion
Collaboration with IOOF
On 18 December 2020, HUB24 announced that it had entered into an agreement with IOOF under which they agreed to collaborate to develop a range of solutions including an investment and superannuation wrap platform utilising HUB24’s custody, administration and technology capabilities; and a suite of managed portfolios. Under the proposed arrangement, HUB24 will provide custody and administration services for IOOF’s new private label investment and superannuation solution that will extend the range of products and services offered to the IOOF adviser network and their clients. HUB24 acquisitions of Xplore Wealth, PARS and Easton Investments On 28 October 2020, HUB24 announced a trio of corporate transactions for approximately $93 million (including integration and transaction costs):
- proposed acquisition of ASX-listed Xplore Wealth (for $60m consideration); and
- acquisition of Ord Minnett’s PARS business (for $10.5m consideration); and
- purchase of 40% of ASX-listed Easton Investments (for $14m consideration) while selling HUB24’s Paragem busines to Easton.
The acquisitions are expected to result in a 47% increase in custodial FUA, around 400 new adviser relationships and the expansion of non-custody administration FUA to $14 billion.
IRESS — acquisition of OneVue Holdings
On 1 June 2020, IRESS and OneVue announced that they had entered into a Scheme Implementation Agreement under which IRESS would acquire all of the shares in OneVue for cash consideration of $0.40 per share (a 67% premium to OneVue’s pre-bid closing price) implying an offer of $107m. The offer price was subsequently increased to $0.43 per share on 28 September 2020 and the transaction completed on 6 November 2020. The approach came after a period of weak OneVue share price performance in 2019 on the back of lower than expected financial performance and the appointment of receivers to the Sargon business (noting that OneVue had sold its Trustee Services business to Sargon in December 2018 with a significant portion of the purchase price deferred). The attraction of OneVue to IRESS was:
- build scale in funds administration
- leverage IRESS’ strength in software and data
- deliver long-term shareholder value (noting short-term EPS dilution).
Andrew Walsh, CEO of IRESS, noted that the transaction would “bring advice and investments closer together, leveraging combined strengths in the administration of managed funds, superannuation and investment, along with our position in technology and data“.
GBST Holdings — approaches from Bravura Solutions, SS&C and FNZ
ASX-listed GBST received a non-binding indicative proposal from ASX-listed Bravura Solutions in April 2019 at a cash price of $2.50 per share. Subsequently GBST received a number of alternative proposals from FNZ Group (a global technology and administration services firm), Bravura and SS&C Technologies. Prior to the bids, GBST had experienced a number of periods of underperformance as well as abrupt management changes and had embarked on a programme to upgrade its software platform with $50m of required investment. On 29 July 2019, GBST announced entry into a binding Scheme Implementation Deed with FNZ at a price of $3.85 per share, valuing the GBST equity at approximately $269m. The scheme completed in November 2019 although the UK Competition and Market Authority (CMA) have subsequently sought to require FNZ to dispose of the business for competition reasons. FNZ is appealing the decision.
Praemium — acquisition of Powerwrap
On 9 July 2020, Praemium (a global provider of technology platforms for managed accounts, investment administration and financial planning) announced a $56m cash and scrip takeover offer for ASX-listed wealth management platform Powerwrap. The transaction rationale included the desire to achieve scale (with FUA of the combined group expected to be more than $27 billion) as well as significant synergies and ability to access Powerwrap’s customer base. The transaction completed on 6 November 2020.
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