Private equity firm Kohlberg Kravis Roberts & Co has offered up to $1.73 billion for Australian fund manager Perpetual, reigniting merger interest in Australia's $1 trillion wealth management sector.
Australia's wealth management industry is the world's fourth largest and is expected to grow at 12 percent a year, but mergers have dried up over the past year, with the sole exception of National Australia Bank's (NAB) failed $12 billion bid for wealth manager AXA Asia Pacific.
KKR's indicative bid of between A$38 and A$40 a share, a premium of up to 29 percent on Perpetual's closing price on Friday, took investors by surprise, triggering a rally in shares of Perpetual and rivals.
Perpetual shares surged to A$39.39, a nine-month high, before easing back to A$37.78, up 22 percent. Fund manager Platinum jumped 5.4 percent, Challenger Financial rose 4.3 percent, AMP climbed 2.4 percent and AXA Asia Pacific added 2.0 percent.
"The bid certainly shows the financial sector, especially funds management, will see consolidation in the coming year," said Simon Burge, executive director at ATI Asset Management.
CONCERNS ABOUT PERPETUAL
Perpetual, with about $30 billion under management, is among the top independent fund managers behind AMP and AXA Asia Pacific in a market dominated by the top four local banks.
But it has struggled to attract inflows in the higher-margin retail funds market and is looking for a new chief executive to replace David Deverall who has decided to quit.
Those concerns, together with new proposals that could crimp fees, had sent the stock 17 percent lower this year, based on Friday's close.
KKR's offer values the stock at between 19.7 and 20.7 times FY 2011 earnings and represents about 5.8 percent of Perpetual's assets. Private equity firms have been stepping up their presence in Australia, which escaped a recession during the global financial crisis and is now rebounding strongly.
The offer comes as the Australian dollar climbed above parity against the US dollar late last week, the first time it has done that since being floated in 1983.
KKR lost a bidding war for hospital owner Healthscope to rivals TPG and Carlyle this year and has been scouting for opportunities ever since.
KKR's bid, which is being considered by Perpetual's board, also comes at a time when the top banks face regulatory hurdles and are seen sitting on the sidelines, protecting their dominance and leaving deals to smaller rivals and foreign players.
"I don't see any corporate interest in this deal. It could be a private equity play. With a low debt level, PE firms can add gearing and make it work," Christopher Hall, chief investment officer at Argo Investments said.
Perpetual, which has retained Goldman Sachs as its adviser, asked shareholders to take no action immediately on the indicative, non-binding proposal.
"Perpetual has a strong culture and brand which has helped develop its leading funds management capabilities," a KKR spokesman said, confirming the bid.
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