It has been confirmed that Generation Development Group (GDG) will acquire the remaining shares in Lonsec it does not yet own, increasing its ownership to 100 per cent of the issued capital of the business, after four months of negotiations behind closed doors.
In an ASX announcement on Monday, GDG announced it has entered into a binding agreement to acquire the remaining 61.9 per cent of Lonsec’s fully diluted share capital for $197.4 million.
Subject to GDG shareholder approval, the transaction is expected to be completed in August 2024.
For Lonsec, the potential acquisition will bring a number of benefits to the business, especially enhanced access to capital to fuel innovation in new products and solutions, as well as allowing it to explore fresh opportunities, as CEO Michael Wright explains.
Speaking with InvestorDaily, he shared that Lonsec began looking “for a partner to innovate with” as early as May 2023, and has had a number of overseas parties voice interest in the business.
“We received a non-binding indicative offer from a global PE firm around about this time last year, but what it really did is set up a valuation for the firm and gave us real confidence that we can create something very special for stakeholders,” he explained.
Although Lonsec determined this particular transaction would not be in the best interests of its stakeholders, the deal saw its largest shareholder, GDG, come forward to discuss its own potential offer.
“Generation Development Group, who is our largest shareholder – they were involved in all those conversations last year – came out of the shadows, if you like, and said they were interested, and we started conversations four months ago,” Wright said.
He described GDG as a “natural long-term owner of the business”, given its strong alignment with Lonsec in terms of its client-centric culture and values.
GDG has notably been a substantial shareholder in Lonsec since 2020.
The firm’s full acquisition of Lonsec will not change Wright’s standing as CEO, he said, with Lonsec set to remain a separate division.
As such, Wright believes it will largely be business as usual for both firms once the transaction is finalised, following which he will report to Grant Hackett who is the CEO of Generation Life – GDG’s subsidiary.
“I will report to Grant Hackett, and myself and the leadership team are absolutely committed to working through the next couple of years in terms of our growth plans. There may be minor impacts around some of the shared services, but fundamentally, there won’t be people laid off in masses, far from it,” Wright assured.
“GDG is APRA-regulated, they issue insurance bonds and annuities, while Lonsec is ASIC-regulated from a research and managed account perspective. They are different businesses, but there are some complementarity areas we can leverage,” he added
Managing potential conflicts of interest will, however, necessitate some minor changes.
Namely, Lonsec currently rates GDG products, but it will cease to do so following the transaction.
“Grant, to his credit, has already spoken to our competitors around them potentially picking that up. We take it very seriously, effectively managing any actual or perceived conflict, so I don’t think you’ll see significant change apart from that.”
Moreover, Wright added he expects Lonsec’s research and ratings businesses, namely Lonsec Research, SuperRatings, and iRate, to be largely unaffected by the acquisition.
Managed accounts business to benefit
Movements are, however, expected in Lonsec’s managed accounts business, which is expected to benefit from the new infusion of capital, Wright said.
“We’re going to have much faster access to capital and we only look to deploy capital to really support our growth initiatives off the back of solving problems for clients and creating solutions and products for our clients, so we’re quite excited about that possibility,” he elaborated.
“We’re very bullish on the managed account side and asset consulting side, and we hold the view there could be some consolidation within the industry over the next five to 10 years, so we want to be really well-placed as an institutional provider if that is the case.”
This consolidation, he added, will be particularly poignant among those struggling to achieve scale.
Wright observed: “Since I first started at Lonsec, I feel like the number of investment consultants has nearly doubled, particularly boutique consultants, and they’re all doing a great job at a niche level, but I do think that the industry will consolidate a little bit, particularly as they struggle to get scale, so we’d love to be involved in supporting them to grow their business further.”
According to Wright, Lonsec’s “very successful” acquisition of managed discretionary account provider, Implemented Portfolios, in 2022 could hold a clue as to where its future merger opportunities lie.
“You’ve only got to look back historically to see our focus around Implemented Portfolios, which was a very successful acquisition. What it allowed us to do, in essence, offer any style of managed account to licensees and advisers, so to have that ability now to also offer managed discretionary accounts on top of separately managed accounts was a really important piece for us,” he elaborated.
“That history probably provides the clues. If we find we’ve got any gaps in our offer, particularly around managed accounts, we would be very open to conversations.”
