KKR’s deal to buy 55 per cent of Colonial First State for $1.7 billion on Wednesday could signal a new wave of consolidation in wealth management and in particular among investment platforms, industry players have commented.
The sale price, which implies a multiple of 15.5x proforma standalone net profit – excluding the $173 million of surplus capital it has on its balance sheet – has been described in industry circles as a reasonably full valuation when compared to the close to 10x price to earnings valuation multiple of its most comparable listed rival, IOOF.
This valuation multiple is much lower than the 30-plus price to earnings valuation multiples the share prices of some of the so-called specialty platform providers such as HUB24 and Netwealth are trading. These multiples reflect much higher growth rates starting from a much lower base than the larger and more mature bank and institutionally-owned wealth platforms.
The deal with KKR relates to the CFS platform, pensions and investments business but does not include any licensee or advice businesses. Following the deal announcement CountPlus was quick to note the sale to KKR did not include the 36 per cent stake CFS has in the listed advice business – this stake has been transferred to CBA’s ownership, the bank confirmed. Separately, the “assisted closure” of dealer group brand Financial Wisdom was due to be finalised in June this year and was not part if the KKR deal, either.
No word in the KKR deal announcement or in CBA’s Q3 trading update regarding its ‘NewCo’ plans, which grouped Aussie Home Loans and CBA’s 16 per cent stake in Mortgage Choice with the assets it has now agreed to sell to private equity.
But it is the mention of CBA and KKR’s commitment not only to undertake a “significant investment program” but also “participate in future industry consolidation” – according to CBA’s Q3 trading update which includes details of the deal – that caught the eye of analysis and industry participants alike when the deal broke on Wednesday.
The CBA deal with KKR follows an announcement by Westpac the prior week outlining its plan to eventually sell its wealth assets, including its once-prized Panorama platform.
Sunday Session reported that wealth executives had raised the possibility that UK third party administration provider FNZ could well positioned to consider an acquisition of BT, as could Westpac’s bank-owned rivals National Australia Bank and CBA, both of which are planning wealth management exits.
The acquisition of CFS by KKR could provide the funding and the appetite now for CBA through this new partnership to continue to further consolidate the local platform market, industry players who spoke about the deal on background, said.
BT Financial Group currently has the largest slice of the platform market with 18 per cent of the total funds under advice, according to UBS figures. AMP Group , CFS and MLC have 17.3, 14.9 and 13.5 per cent respectively. IOOF following its acquisition of ANZ Wealth Group has a similar share on funds under advice as Macquarie Group at around 10 per cent.
While consolidation in the platform industry would result in potentially one or a couple of larger players able to build scale through acquisition, Citi Analyst Siraj Ahmed said he sees this as a positive for the platform industry’s profitability. A reduction in competition stemming from consolidation would likely lead to reduced competitive intensity and less pricing competition, he said.