The $670 million acquisition of Shadforth Financial Group (SFG) by IOOF could be one of the last major deals in the round of consolidation that has swept Australia’s financial planning sector in recent years.
“SFW [SFG Australia] is the last-standing quality asset in the wealth market, in our view,” according to analysis from Morgan Stanley.
The company that emerges from the transaction will be ranked third in the Australian financial planning sector in terms of funds under management, administration, advice and supervision. It will control around $150 billion and manage a network of more than 1100 financial advisers.
Morgan Stanley rates the proposed merger as a winner, describing SFG as “a quality asset, delivering scale while strengthening capabilities in the portfolio”.
Tony McDonald, principal of T&C Consulting and former group CEO of Snowball Group, which merged with Shadforth in 2012 to form the ASX-listed SFG Australia, agrees with this assessment.
“It makes a lot of sense in terms of consolidation, in that it gives IOOF both revenue diversification and greater access to the high-net worth segment including accounting capability.
“It is an absolutely industrial-strength business, and that’s why it would be attractive to IOOF in serving that segment,” he says.
Decline
McDonald also believes this deal could mark a decline in the number of similarly large-scale acquisitions that occur within Australia’s wealth management industry.
“How far has [consolidation] got to run? Out of a lot of the big quality assets, how many are left?
“I’m not saying the logic isn’t there – but how many other $500 million market-cap advice-centric businesses are there? None. This was the biggest by a fair way, after Count,” McDonald says.
Prior to this announcement, the Commonwealth Bank of Australia’s (CBA) purchase of Count Financial was the biggest acquisition of a licensee in recent years. CBA acquired the then ASX-listed non-aligned financial planning business for $373 million at the end of 2011.
In January this year Financial Index Wealth Accountants (Findex) acquired Centric Wealth from the CHAMP private equity firm for $130 million.
Under the terms of the latest big-scale merger, IOOF – which already owns dealer groups Bridges Financial Services, Lonsdale, Ord Minnett, Consultum, My Adviser and Plan B – has said it will maintain the SFGA brand and operating model.
Business as usual?
IOOF managing director Chris Kelaher has declared it will be “business as usual for SFGA’s clients, advisers, accountants and employees”.
While some stakeholders and industry commentators may mourn the merger as the loss of yet another non-aligned financial planning business, SFGA chief executive Tony Fenning (pictured) emphasised the “non-affiliated independence” of its advisers would be preserved.
Two former employees of SFGA and Shadforth, who spoke on condition of anonymity, argue this “independence” already disappeared as the business scaled up through acquisitions and listing on the ASX.
One argued SFG was home to “some seriously aggressive operators” and that it shouldn’t be “about profit over people,” anticipating a cultural change under IOOF could be a good thing for the company.
Another said SFG had already “moved away from its roots progressively as it went down this corporate path.”
An SFGA statement issued on Friday morning said the SFGA Board unanimously recommended SFGA shareholders vote in favour of the scheme.
The merger should be finalised by the end of August, once court hearings have been conducted and appropriate regulatory approvals granted.
