KKR to buy majority stake in Australia's Colonial First State

The partial divestment allows CBA to focus on its core banking businesses. Such streamlining efforts have been expected from Australia’s big four banks – CBA plus National Australia Bank (NAB), Westpac, and Australia & New Zealand Banking Group (ANZ) – ever since last year’s Royal Commission inquiry into financial services sector misconduct. With greater compliance burdens, banks would no longer see the economic rationale of operating in certain areas.

CBA has already offloaded its life insurance, financial planning, and global asset management businesses. Westpac and ANZ have both restructured their wealth management operations – leading to some parts being sold or shuttered – while NAB put its planned divestment of MLC on hold.

The coronavirus pandemic, and consequent reduction in economic activity, has complicated matters. CBA announced the CFS deal while disclosing that it had allocated A$1.5 billion for loan provisions in anticipation of potential bankruptcies and defaults. The sale of the 55% stake is expected to generate cash proceeds of A$1.7 billion and a post-tax gain of around A$1.5 billion.

At the same time, the aim is for CFS to become a focused, standalone business that delivers more choice, a simplified product offering, and competitive pricing to customers. To this end, CBA and KKR said they would make significant investments in business improvements, from technology systems to member education. Most of KKR’s equity commitment will come from its third pan-Asian private equity fund, which has a corpus of $9.3 billion.

CFS was established in 1988 as a provider of superannuation, investment and retirement products to individuals and corporate and superannuation fund investors. It also operates and administers investment platforms. As of April 2020, CFS had about one million members and A$135 billion in funds under administration. The company also had 2,000 employees.

“CFS is one of the most respected providers of investment and superannuation services in Australia with a highly regarded product and service offering to members and advisors. Partnering alongside CBA, we look forward to accelerating CFS’s transformation and further strengthening its market position to deliver long-term benefits to its member base,” Scott Bookmyer, head of KKR Australia, said in a statement.

The sale price implies a multiple of 15.5x CFS’ pro forma standalone net profit of around A$200 million, based on run-rate cash earnings to April. Wealth management generated A$160 million in net profit for CBA in the 12 months ended June 2019, compared to A$4.2 billion for retail banking. For the six months ended December, these figures were A$127 million and A$2.2 billion, respectively.

The transaction is subject to approval by Australia's superannuation regulator and the Foreign Investment Review Board (FIRB). It is expected to close in the first half of 2021.

 

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• Topics
• Australasia
• Financials
• Buyouts
• Australia
• KKR
• Financial Services