Two old-time Australian fund management rivals have hooked up in a marriage of convenience aimed at maintaining scale for their out-of-favour active styles.
Under a merger proposal unveiled last week, Perpetual, will buy fellow ASX-listed investment manager, Pendal, in a scrip-and-cash deal valued at A$2.5 billion. The A$757 million cash component will be debt-funded.
Pendal, the former iconic BT investment business spun out of Westpac in 2007, contributes about A$111 billion to the funds pot while Perpetual brings A$90 billion along, creating a A$201 billion machine composed of seven underlying brands spanning multiple asset classes and jurisdictions.
Both Perpetual and BT were among the handful of dominant fund managers in Australia and NZ in the ‘90s and early years of the 21st century, although their influence has waned over the last decade, especially on this side of the ditch.
According to a release: “The combined group will be better positioned to accelerate future growth through the expansion of investment and distribution capabilities, while providing the scale benefits associated with a significantly enhanced global operating model, delivering greater shareholder value for both Perpetual and Pendal shareholders.”
Guff aside, the merger is forecast to culminate in the inevitable ‘synergies’ estimated to generate an extra annual A$60 million of pre-tax profit starting about two years from closing the deal.
The combined Pendal-Perpetual entity would throw off about A$1.4 billion in revenue and A$456 million in profits annual before tax, the statement says, based on most recent financials.
Perpetual, headed by industry veteran Rob Adams, has been flirting with Pendal for several months, finally cementing the deals last week after earlier rebuffs.
Adams, who has done time atop other big-name Aussie fund names including Colonial First State and Challenger, will lead the combined entity to be housed under the Perpetual umbrella.
During his watch starting in 2018, Perpetual has expanded globally, buying two US-based managers in 2020: spending A$465 million to acquire a 75 per cent interest in diversified investment shop, Barrow Hanley; and, splashing out A$54 million for sustainable manager, Trillium.
Pendal, too, has accumulated sub-brands over the years, picking up UK fund manager J O Hambro in 2011 for A$314 million in the BT/Westpac days; Australian ESG researcher, Regnan, in 2018; and, following up with the US$320 million purchase of US value investment house, Thomson, Siegel and Walmsley last year.
Adams talked up the manager diversity as a positive, in line with the increasingly popular multi-affiliate model followed by operations such as US firm, Franklin Templeton, and Australian providers like Pinnacle and Apostle.
“We believe the multi-boutique model that both firms espouse is the ideal model for active asset management, bringing together the strengths of both traditional and boutique business models, delivering scale, high-quality investment teams backed by deeply resourced distribution and governance frameworks,” he said.
The united Pendal-Perpetual business has scope to grow five-fold to A$1 trillion before butting against capacity constraints, a merger presentation document shows.
Either way, as witnessed in NZ earlier this month with the Fisher Funds $310 million buyout of Kiwi Wealth, the insatiable appetite for scale in asset management is bringing even ancient competitors to the same table.