In a surprise decision, Mercer has won the bidding for Pillar Administration for a similarly surprising low headline price of $35 million, pipping the frontrunner for the deal, Link Group. The sale process was not a happy one for the NSW Government.
Mercer, which has an estimated market share of just 2 per cent under some calculations, will triple its market share by taking over the larger Australian administrator. But this is still only 6 per cent of the entire fund administration market, compared with Link’s 34 per cent.
As was argued by Link before the Australian Compettiion and Consumer Commission the ‘market’, as it defines it, includes the big government and bank-backed super funds, which self-administer their superannuation products. They account for more than 50 per cent of the market by members.
Nevertheless, the purchase gives Mercer’s admin business a significant boost and at least three new major clients: First State Super, State Super (STC) and Commonwealth Super Corporation (PSAP). A fourth major client is Mercer competitor Aon Consulting, which could be expected to take its business elsewhere.
Although its final price is relatively small, the sale also saves the NSW Government from spending further amounts on technology upgrades and other reinvestments at Pillar, which have totalled about $30 million in the past three years.
The interested parties were asked to commit to two years of guaranteed employment in Wollongong for most current employees and to maintain a presence in the politically sensitive electorate for at least 10 years.
It is not known whether the Government was able to extract further commitments out of the winning bidder during its process. Mercer has said, however, that it would be structuring the Wollongong office as a “centre of excellence” for its administration business.
When it was first mooted for sale under the Baird Government in 2015, and before the documents came out, a sale price of well over $100 million was suggested. This was readjusted by various commentators to about $70 million in recent months.
Three events occurred during the sale process which would have been particularly annoying for NSW Treasury, which oversaw the process:
. Pillar’s administration partner, Financial Synergy, was also put on the market for sale – and subsequently sold to IRESS, another big systems company.
. Then the system being transitioned by Pillar’s biggest client, First State Super, suffered a major glitch. First State Super members were unable to access certain information portals for more than a week.
. And then the ACCC published its interim findings about a Pillar takeover by Link, which questioned such a deal on the grounds of reducing overall competition in the sector. Link was expected to appeal that interim decision but with the Mercer deal now announced, such a move is no longer relevant.
Ben Walsh, Mercer’s market leaser for the Pacific and managing director, said his form would be able to further add value for clients and their members through the investments it was making and through strategic partnerships, alliances and acquisitions such as Pillar.
“Specifically, we know many super funds are seeking a proactive and sustainable business partner who can provide superior administration and related services, reduce costs and help funds get closer to members. For this reason we have invested heavily in our people capability, process innovation and technologies to ensure we are ready for these opportunities. This deal provides Mercer with the capability and scale to enhance our clients’ relationships with their members.”
* Greg Bright is publisher of Investor Strategy News (Australia)