EL&C Baillieu’s eight high-priority M&A targets – in order of market capitalisation – are Janus Henderson, Pendal, Australian Ethical, Praemium, Class, Fiducian, Mainstream, and SelfWealth.
“We estimate over 65 per cent of the retail wealth management market may change ownership over the next 12 months, leading to significant changes in the way the sector operates and how services are delivered,” EL&C Baillieu analysts said.
“Moreover, private equity groups are likely to own at least 30 per cent of the sector (and maybe up to 50 per cent), leading to further change.”
Janus Henderson tops the list due to the emergence of activist shareholder Trian on its registry, and EL&C Baillieu believes a potential merger between Janus Henderson and US-based Invesco could be justified on the basis of increased scale and investment capability and as a “countermeasure to a competitive industry with various headwinds”.
Australian Ethical – which has seen substantial growth off the back of several climate disasters – could also be “appealing to a corporate suitor”.
“(Australian Ethical) has an outstanding brand and reputation in the ethical/responsible investing space. It has carved a very strong position by avoiding traditional channels and going direct to consumers,” analysts said.
“ESG and responsible investing is one of the few growth segments of the global asset management industry, and AEF has a prime position in an Australian market that is mandated for growth. The company is also now unencumbered given IFL’s recent divestment of the majority of its stake (18 per cent stake down to 5 per cent).”
SelfWealth also stands out due to the potential for growth in the self-directed channel, and has seen significant activity levels and its first quarter of positive cash flow, while Fiducian – with a market capitalisation of $178 million – might not have sufficient scale to compete long-term and could soon be snatched up.
EL&C Baillieu also anticipates more interest in the sale of AMP, which is currently fielding a takeover bid from US private equity player Ares.
“With a likely significant customer overlap between the divisions, we believe a complete takeover is more likely than a break-up. Ares appears to be of the same view,” analysts said.
“With other private equity potentially interested in AMP, according to various press reports, there may be ongoing corporate interest in the stock, in our view. A competitive process is not out of the question. In our view, AMP Bank and AMP Capital are the jewels in the crown.”