Bain buyout fight shows allure of pensions

Insignia Financial

09/01/2025 12:00

(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
    By Antony Currie
       MELBOURNE, Jan 9 (Reuters Breakingviews) - Australia's
pension funds would surely be on any list of assets that
investors would fight to own a piece of. Two U.S. private equity
firms are now putting that theory into practice. On Monday CC
Capital, founded by Blackstone  BX.N  veteran Chinh Chu, lobbed
in a non-binding proposal valuing Insignia Financial's  IFL.AX 
equity at A$2.9 billion ($1.8 billion). That's 7.5% higher than
the already rejected offer Bain Capital put on the table last
month, and a 40% premium to Insignia's undisturbed price. It
shows the allure of Down Under's so-called superannuation
industry.
    Insignia is not the cream of the crop. Sure, the roughly
$180 billion of superannuation assets it holds, accounting for
around 70% of its revenue and all its earnings, rank it third
behind AustralianSuper and Australian Retirement Trust.
    But it's not growing. Outflows in the 12 months to the end
of June 2024 were 2%, compared with net inflows of 7.2% and
3.7%, respectively, for its larger rivals. Most other major
peers, like Hesta and Rest, are adding assets, too. The
country's superannuation system held A$4.1 trillion at the end
of June, 17% higher than a year earlier, making it the world's
fourth-largest pool of retirement assets.
    Part of Insignia's problem is that its superannuation
business is a hodge-podge of offerings, partly the result of
acquisitions. Boss Scott Harley has called them "a mess" and is
cleaning them up as part of a broader turnaround that includes
cutting group annual costs by some 20%, or A$200 million, by
2030.
    Bain or CC Capital could try to speed those up and increase
them. But the other problem impeding Insignia's superannuation
growth is structural. It's a for-profit company in a business
dominated by mutually owned rivals like AusSuper, ART and Hesta.
Not having to hand over profit to external shareholders gives
the latter a cost advantage; they also on average tend to have
younger clients than Insignia and other for-profit peers like
Mercer, which helps explain why they have more fee-generating
money pouring in - and less heading out to fund pensions.
    That would limit how much a successful bidder could bolster
the top line. And more revenue would be needed to pay interest:
a deal at CC Capital's proposed price would quadruple Insignia's
net debt to 4 times this year's EBITDA, per LSEG data, assuming
equity financed half the deal. It all warrants some bidding-war
restraint.    
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    CONTEXT NEWS 
    
    Australian wealth and asset management company Insignia
Financial on Jan. 6 said it had received a non-binding,
indicative proposal from New York-based private investment firm
CC Capital Partners that valued the company's equity at A$2.9
billion.
    The A$4.30-a-share proposal is 7.5% higher than an offer
from Bain Capital that Insignia revealed on Dec. 13 and rejected
five days later. CC Capital's proposal is 41% above Insignia's
undisturbed share price at market close on Dec. 11.

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Graphic: Australia's Insignia shares have come off their lows   
https://reut.rs/4adtKSY
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 (Editing by Robyn Mak and Aditya Srivastav)
 ((For previous columns by the author, Reuters customers can
click on  CURRIE/ 
antony.currie@thomsonreuters.com))