Link Group has reached an agreement to sell the newly acquired ‘corporate and private clients’ business of Capita Asset Services, the UK asset servicing company it paid about A$1.5 billion for in mid-2017. The £240 (A$433 million) from the sale will go to paying down debt. The share market liked the news.
In a prepared statement, John McMurtrie, Link’s chief executive, said the sale would allow Link to focus more on those businesses where it could more readily apply its technology and “innovative solutions” to support clients and the company’s future growth.
The purchase of Capita was always going to be a stretch.
He said after returning from London to Sydney over the weekend, that Link’s core business was looking to connect asset owners with their service providers, and that this meant providing more and better data between the asset pools and their admin.
The Link share price hit a 52-week high of $9.05 in February last year but drifted lower for the rest of the subsequent 12 months, along with most of the market, settling at $6.50 on Christmas eve. It has been firming in the past two weeks and jumped 13c to $7.26 last Friday, on the back of the UK business unit sale.
The company, which has a market cap of $3.8 billion, is important for the industry not only because of its administration infrastructure, as the main provider of admin services to the not-for-profit and non-government super sectors, but also because several big industry funds, such as Australian Super, are also significant shareholders.
In the 12 months to December just gone, the business being sold to Apex Group contributed £78 million (A$140.8 million) to Link Group revenue and approximately £20 million (A$36.1 million) to Link Group Operating EBITDA. Based on current exchange rates, Link Group expects to recognise a post-tax accounting gain on completion of the sale, the statement said. The sale is expected to be completed about September this year.
An important investment for Link has been its almost 20 per cent stake in PEXA, which it added to in 2017. PEXA is an Australian online property exchange. McMurtrie believes that this has “great momentum”. PEXA assists property buyers and sellers and their various agents to transact with bodies such as the government land registries and conveyancers.
When Link bought Capita, it acquired four distinct businesses:
. The Capita share registry business, which fit neatly with that of Link Group, as part of Link Asset Services
. The unlisted funds support business, as part of Link Fund Solutions, which is the largest of its kind in the UK
. A Dublin-based mortgage administrator, and
. the business unit just sold to APEX.
McMurtrie said: “The proceeds of the [Capita division] transaction will provide Link Group with a stronger and more flexible balance sheet enabling us to continue to assess growth opportunities that are strategically aligned to our core business priorities.
“Link Group’s revolving debt facility means any headroom created by debt reduction remains available to support future acquisitions in accordance with Link Group’s growth strategy.”
Greg Bright is publisher of Investor Strategy News (Australia)