FNZ will have to offload its $260 million plus Australian software asset within months after the UK competition regulator smothered the deal in a final ruling last week.
In a decision handed down on Thursday November 5, the Competition and Markets Authority (CMA) ordered FNZ to sell GBST in its entirety, declaring the merger raised “significant competition concerns in the supply of retail platform solutions to investment platforms in the UK”.
Martin Coleman, chair of the CMA inquiry group into the FNZ/GBST acquisition, said the merger of the two firms “has substantially reduced competition in this sector”.
“This matters to the millions of UK consumers who hold pensions or other investments. This is because competition plays a key role in driving price and quality. Without healthy competition, costs could go up and service quality could get worse,” Coleman said in a statement.
“FNZ chose to complete its acquisition of GBST without first seeking merger clearance in the UK, which it is perfectly entitled to do. This came with the risk that the CMA could call the case in for investigation and that, if competition concerns were found, FNZ could be required to sell off all of the business it had just acquired.”
A FNZ spokesperson said: “We note that the CMA has published its final views on FNZ’s 2019 acquisition of Australian software company, GBST. We have no further comment at this stage.”
FNZ bought the former ASX-listed GBST for over $260 million last July, beating competitors Bravura and SS&C to the punch with an aggressive last-minute sinking auction bid for the business.
According to the CMA analysis, the combined FNZ/GBST entity could represent between 40-60 per cent of the UK retail investment platform market. The CMA data estimates FNZ currently holds between 30-40 per cent of the UK platform market while GBST accounts for 10-20 per cent. Bravura and SS&C each report a similar share of the UK platform business as GBST.
In a 207-page final report (plus almost 100 further pages of appendices), the CMA dismissed FNZ analysis that painted GBST as complementary rather than competitive. The UK regulator also rejected claims GBST customers would miss out on better service and lower prices under FNZ ownership.
And, in a final blow, the CMA knocked back potential solutions proposed by FNZ including a partial sale of GBST or a software licensing deal.
The CMA favours a quick sale of GBST with the process to be monitored by an independent trustee.
“Either the final undertakings or the final order must be implemented within 12 weeks of publication of a final report (or extended once by up to six weeks under exceptional circumstances), including the period for any formal public consultation on the draft undertakings or order,” the CMA ruling says.
“Once this remedy has been fully implemented, we have decided that FNZ should be prohibited from subsequently acquiring the assets or shares of GBST or acquiring any material influence over GBST without the prior consent of the CMA. Our guidance states that the CMA will normally limit this prohibition to a period of 10 years. We find no compelling reason to depart from the guidance in this case by imposing a shorter or longer prohibition period.”
While the CMA ruling dents FNZ growth plans in the UK and Australia, the investment administration business – founded in Wellington in 2004 – continues to expand in existing European and Asia markets as well as into new geographies, notably the US.
FNZ also reported a solid 2019 calendar year result for its NZ platform business, which hit $19.2 billion in funds under administration at the end of the period, according to the most recent accounts.
The NZ operations reported a net profit of $3.15 million for the year, down from $5.75 million in 2018, on revenue of $36.3 million ($34.8 million in 2018).
FNZ NZ chair, Trevor Matthews, says in the report: “The Group enters 2020 with the expectations of further planned migration of two books of client assets onto FNZ platforms, with additional potential for ongoing sales to complete in-year.
“However, FNZ is also actively working with several customers both on service optimisation and new services with broad market applicability.”
In September FNZ NZ also saw a change at the top with long-time managing director, Charlie Trotter, taking a six-month sabbatical with national head of sales, James McDonnell, “taking on the MD role in his absence”, the spokesperson said.
Meanwhile, Matthews took over as FNZ NZ chair from Nick Sherry, who ended a five-year stint on the board at the end of October. In fact, the FNZ NZ board has seen a major refresh this year with the exits of Damian Millin and Annette King as well Sherry: all three former directors are based in Australia.
Millin, previously APAC chief operating officer for the group, “remains an important part of FNZ”, the company spokesperson said, “he is now based in Sydney and is helping to drive our Australian business forward”.
The Singapore-based chief of the FNZ Asia-Pacific business, Tim Neville, joined the NZ board in May this year (when Millin resigned) with Australians Susan Roberts and Steve Tucker (former head of the MLC wealth business in its hey-day) filling the other two director vacancies in October.