Wealth management firm IOOF Holdings could be taken over by a major bank within the next two years, a Bell Potter Securities analyst has said.
The group had become an attractive potential target due to a combination of factors, including its growing financial services brands and a "lazy balance sheet," Bell Potter Securities director of research Peter Quinton said.
"They own some very high-profile names in the wealth management and funds management area such as Bridges Financial Services, Australian Executor Trustees and Perennial Investment Partners," Quinton said.
"In addition to that they do own a number of investment platforms and by the time they finish rationalising it all they will have three investment platforms."
The fact IOOF was in a net cash position meant the group was not using its balance sheet effectively, he said.
"They currently have net cash on their balance sheet of $118.2 million and about $60 million of that they would need to have for regulatory purposes, so it's not as quite as good as it looks," he said.
"But having even said that they are still sitting on net cash, which is far too conservative. There is no reason why they couldn't have net debt to equity of say 20 to 30 per cent."
IOOF was also in a period of vulnerability as it was busy bedding down its merger with Australian Wealth Management (AWM) and in the process of rationalising platform numbers and internal operations, he said.
It was unlikely the competition regulator would block a major bank's takeover of IOOF as the company size was only around $1.7 billion, he said.
An IOOF spokesperson said the company had a conservative approach to gearing given it was leveraged to the global stock market.
"Our net cash position is a result of our product and regulatory and solvency requirements," the spokesperson said.
"Also, part of that cash position was to fund an 18-cent dividend and also quarterly tax instalments. It's also the position of two businesses coming together (IOOF and AWM) and we are always looking at our capital requirements."
