SINGAPORE-backed Intersuisse Group has outlined plans to buy out the stockbroking arm of Austock Group, in a move that is set to mark the end of the ambitious securities house that once promoted itself as a mini-version of Macquarie Group.
Intersuisse - a rival mid-sized stockbroker - has entered into an exclusivity agreement to acquire Austock's security and corporate advisory business. Terms of the deal have yet to be finalised and any transaction will depend on the outcome of due diligence that takes place over the next month.
For Intersuisse, which specialises in resource and energy stocks, the acquisition will give it broader distribution for its Singapore-based backer, Phillip Brokerage.
Austock has held on and off talks with Phillip Brokerage over recent months about a possible deal as conditions in local markets became tougher for all stockbroking firms.
"This will give us substantially increased scale, which allows us to leverage Phillips' franchise in Australia," Intersuisse's deputy chairman, Jonathan Buckley, said.
Austock has repositioned itself as a mid to small-cap broking firm over the past 18 months in a bid to profit from niches ignored by larger players. It had been buffeted by the financial crisis. Two of its key clients, ABC Learning and Timbercorp, collapsed.
Last year the broker hired the former head of Bank of America-Merrill Lynch in Australia, Paul Masi, as its chief executive and has since recruited staff from banks such as Macquarie, Merrill Lynch and UBS.
Austock posted a net profit of $4.5 million for 2010-11, swinging from a loss in the previous period. No dividend was paid.
Low trading volumes on the Australian Securities Exchange and a dearth of corporate equity capital markets activity have combined to cut revenue for the broking industry.
Austock confirmed as much yesterday when it released a financial update warning that brokerage income remains depressed while several capital market deals have been shelved or delayed until next year.
The transaction will result in Austock remaining a listed company focused on its profitable property trust and small life insurance bond business. However the slimmed down business is widely expected to emerge as a takeover target.
Mr Masi said a merger would offer clients and staff the backing of a bigger international broking business. Phillip, which has operations in 12 countries mostly in Asia, has a 46 per cent stake in Intersuisse.