Wealth management beats path to consolidation

Behind the glass and granite facade the former offices of the listed financial services buying outfit DKN sit vacant and silent following a takeover by consolidator IOOF last October.

It's an eerie example of the consolidation of the Australian wealth management industry that is gathering pace with implications for staff, shareholders and customers.

Last Thursday and Friday two new bids were made for financial services companies at the smaller end of the market.

On Thursday, private-equity firm Crescent Capital made a $220 million bid for listed life insurer ClearView Wealth in the hope of shaking out major shareholder GPG, which had already signalled an orderly sell-down of its portfolio. GPG was quick to dismiss the Crescent offer as wholly inadequate. Yesterday, ClearView's board said the bid was opportunistic and designed to take advantage of uncertain and volatile investment markets. Then on Friday, IOOF struck again. Perth-based wealth manager Plan B said directors were supporting an $49.1 million for the company.

Plan B has had a data room open in Perth for several months to allow prospective bidders the opportunity to examine the purchase of a controlling stake in the firm.

Directors control about 38 per cent of Plan B so their recommendation to accept the IOOF offer, in the absence of a superior proposal, carries more significance than usual. IOOF is eyeing the savings that it can generate from the $22 million that Plan B spends on its 167 headcount, while retaining as much as it can of Plan B's $2.2 billion in funds under administration.

ClearView's suitor has confirmed its life insurance capability to be a strategically significant asset in the context of an over-consolidated market, while Plan B has represented one of the premier cost-out opportunities in Australia's wealth management landscape because of its past commitment to doing everything in house despite its lack of scale.

All this follows CBA's buyout of Barry Lambert's Count Financial last December.

Against a backdrop of credit growth at record low levels and anaemic fund inflows, growth through acquisition for the big firms is looking increasingly attractive. Especially when targets are trading at single digit multiples of already depressed earnings.

With compulsory superannuation contributions legislated to increase to 12 per cent from 9 per cent over the next eight years, one can argue that the long-term prospects of the sector have never been better despite the ill-health of markets at present.

Investment bankers now say that the big banks and wealth managers are willing to contemplate targets that "don't tick all the boxes" in the knowledge that soon there will be few potential targets left.

It's a land grab for distribution.

Not surprisingly, big investors are asking which companies in the listed diversified financial services space are next going to be targeted.

As the old-timers say, you should never buy for takeover, but below are a few that Investorfirst Securities believes are likely players in the further consolidation of the market. Like the rest of the industry, each is battling tough market conditions, which is going to have an impact on short-term earnings potential.

WHK Group is the country's fifth biggest accounting group and the only major one to be listed. It manages 19 firms, mostly on the eastern seaboard, with a specialist financial services division in all but one.

Shares in WHK have risen of late as investors have contemplated its open register, its administration of 11,000 DIY super funds and the importance of quality tax advice in a post-FOFA (Future of Financial Advice legislative reforms) world.

Equity Trustees is a fiduciary specialist, with a particular strength in providing trustee services to third party institutional funds wanting to tap the local market. Over the years it has received a number of unsuccessful takeover bids by its biggest shareholder The Trust Company.

Perpetual Ltd is another trustee company ripe for the emergence of a big cap strategic investor willing to acquire options on one of the best brand names in wealth management. And then there is the Tasmania-based MyState Ltd, which has a banking services business and a trustee/wealth advisory business that is often overlooked by the mainlanders.

Stewart Oldfield is an analyst at Investorfirst Securities. Soldfield@investorfirst.com.au