After selling its international business to Morningstar, Praemium is still open to a merger or acquisition of its Australian business – for the right price – as the industry continues to fight for the benefits of scale.
Last year, the investment platform announced it would offload its international business which covered the UK, Hong Kong, Dubai and Jersey, with Morningstar making an offer at the very end of 2021.
Consolidation in the industry had been well underway as Praemium acquired Powerwrap in 2020, as well as OneVue being acquired by Iress.
Anthony Wamsteker, Praemium chief executive, says the firm does not dispute there was opportunities for consolidation to create greater scale.
“You just need a lot of scale to make your platform business work – and even large companies like Netwealth and with all the growth we’ve had in Australia – we do feel that more scale is helpful,” Wamsteker tells Professional Planner.
“When you have to invest so much into technology to develop a product that’s acceptable to your clients and competitive with other alternatives, you have to have a certain market share to be able to keep investing in your platform.”
For this reason, he continues, platforms need to keep growing market share and consolidation through mergers and acquisition is most likely the end result.
“If somebody has more market share than you then they’ve got more revenue than you and more to spend on their systems.
“You have to keep growing your market share; some of that comes through organic growth but we haven’t ruled out a merger might work for our shareholders, but it has to be at the right price,” he continues.
“I don’t think it’s clear cut yet whether the three major independents – ourselves, HUB24 and Netwealth – whether we’ll get there organically or we’ll need a merger and acquisition.”
Last November, Netwealth made an unsolicited offer to acquire Praemium which was rebuffed.
“We understand the argument that you should get more scale and one way of doing that is put some businesses together… we just felt the price wasn’t at a level that would make it attractive for our shareholders,” Wamsteker says.
Morningstar acquisition adds legitimacy
The decision to sell the international business was so the firm could focus solely on the Australian market, but Wamsteker felt being chosen for acquisition by Morningstar added a level of credibility for the Australian business.
“The fact that Morningstar is buying the business for what we regard as a good price shows the quality of the business that we built… it reflects what we have on offer here,” Wamsteker said.
“A company of the stature of Morningstar, one of the great success stories in financial services, wants to use that as a foundation for building their platform business – it’s a great tick for us and what we’ve been doing.”
In the meantime, there would be no crossover between the firms.
“As part of that sale we agree not to compete in the markets where we were, but they can’t also use that technology to start a business in Australia,” Wamsteker said.
“The longer-term opportunity is they obviously see the value of that platform technology with their core business technology.
“As they start to realise those opportunities, we can probably build a partnership or a stronger relationship with them in Australia.”
Strong performance to end 2021
Praemium annual inflows saw an 87 per cent increase to $4.9 billion for the 2021 calender year, according to December quarterly results released to the ASX.
Net platform inflows increased 12 per cent compared to the December 2020 quarter to $1.25 billion.
Funds under administration reached a record high of $49 billion, an increase of 43 per cent in the past 12 months.
