Being caught in an intensifying bidding war is a good problem to have – Insignia Financial (ASX: IFL) has received six offers since last December from private equity firms Bain Capital and CC Capital.
The bidding war began when Bain Capital made its initial approach on December 13th, offering $4.00 cash per share — a 30.7% premium to Insignia's previous closing price. Through a series of competing bids between the two private equity firms, the offer price has steadily climbed, reaching $4.60 per share.
Here is a summary of the key events since Bain's initial offer.
13 December 2024: Bain Capital offers $4.00 cash per share
18 December 2024: Insignia rejects the offer, citing "the transaction does not adequately represent fair value for IFL shareholders"
6 January 2025: CC Capital offers $4.30 cash per share (a 7.5% premium to Bain $4.00 offer)
13 January 2025: Bain Capital matches the $4.30 offer and says it is open to discussing a transaction structure that would allow Insignia shareholders to receive a portion of their consideration as private equity shares
17 January 2025: CC Capital lifts the offer price to $4.60 cash per share (a 7.0% premium to the $4.30 offer)
20 January 2025: Insignia offers to provide CC Capital with access to non-public information on a non-exclusive basis
23 January 2025: Bain Capital matches the $4.60 offer and also receives access to non-public information
Insignia has struggled over the years, with its share price still 45% below January 2020 levels despite recent takeover interest and soaring equity markets. This underperformance can be attributed to:
Fallout from the 2018 Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry
Ambitious acquisitions of MLC Wealth and ANZ Pensions and Investments businesses, which proved challenging to integrate
Net outflows and declining funds under management
High costs and margin compression
In March 2024, Insignia appointed former AMP Australia chief Scott Hartley as CEO. Within four months, Hartley announced a major overhaul of the company's operating model and a costly optimisation program aimed at reducing costs.
Following Insignia's FY24 result on 22 August 2024, Citi highlighted significant upcoming cash commitments over the next couple of years including up to $167 million in expenditure in FY25 for its optimisation program and $214 million over two years for its remediation program.
These considerable one-off expenses forced Insignia to suspend its final 2024 dividend, triggering a 15.7% stock price plunge on the results announcement.
CEO Scott Hartley addressed the dividend suspension saying, "We acknowledge the pause in dividend payments will be disappointing for some of our shareholders however, at this time, we must prioritise strengthening our balance sheet."
The outlook remains challenging, with Citi projecting continued pressure on revenue and platform flows throughout FY25. The investment bank also warns that another round of cash remediation payments could result in no dividend distribution for the first half of FY25.
"We see longer-term potential for Insignia to establish a profitable footprint in a wealth landscape vacated by the banks," Morgan Stanley analysts said in a note earlier this year.
The below table refers to their forecasts (as at 8 January 2025), which highlight FY27 as a step change in statutory profit growth and a return of dividends.
| FY24 | FY25e | FY26e | FY27e |
---|---|---|---|---|
UNPAT (A$m) | 216.6 | 255.2 | 265.7 | 281.0 |
Statutory NPAT (A$m) | -185.3 | 50 | 169.9 | 192.3 |
Dividend (cps) | 9.3 | 0 | 0 | 23.0 |
Total FUM (A$bn) | 311.3 | 336.3 | 350.2 | 365.2 |
This is likely what the bidders are banking on – Buying a beaten-down stock that's in the midst of a turnaround.
The current $4.60 per share offer values Insignia around 11.2x FY26 earnings. To add some perspective,
Insignia has traded on a five-year average P/E of 10.3x
KKR bought a 55% stake in Colonial First State (May 2021) priced at 15.5x
IFL purchased ANZ Wealth at 15.5x (Oct-17) and MLC at 16.2x (Aug-20)
Adding another layer of complexity is the position of Tanarra Capital, Insignia's largest shareholder with a 15.2% stake, which opposed the earlier $4.30 per share offer, dismissing it as "highly opportunistic" and expressing a preference for the company's existing strategic trajectory.
While Insignia initially rejected the $4.00 bid, its decision to grant both private equity firms access to non-public information at the $4.60 level suggests growing interest in a potential deal.
However, management faces a delicate balance. While historic M&A in the sector and shareholder sentiment might justify pushing for a higher price, such a strategy risks derailing negotiations entirely. This is particularly precarious given that Insignia still needs to execute its transformation plan, which carries its own set of substantial risks.
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