Australia's IOOF to buy NAB wealth management arm

MLC operates Australia’s biggest retail superannuation fund, which in turn has one of the country’s largest and most international private equity programs. The sale follows a strategic decision announced by NAB in 2018 to simplify its strategy and focus on its core banking business.

Divestments have been expected from Australia’s big four banks – NAB plus Commonwealth Bank of Australia (CBA), Westpac, and Australia & New Zealand Banking Group (ANZ) – ever since the 2018 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.

Earlier this year, KKR agreed to buy a 55% stake in Colonial First State (CFS), the wealth management arm of CBA in a deal that values the business at A$3.3 billion. CBA has also offloaded its life insurance, financial planning, and global asset management businesses, while Westpac and ANZ have both restructured their wealth management operations, leading to sales and closures.

The deal – which values MLC at 17.3x projected earnings for 2020 – comprises A$1.24 billion in cash and the issuance of a A$200 million structured subordinated note by IOOF to NAB, an NAB filing states. IOOF will fund the cash portion through a A$1 billion institutional share placement, A$250 million in senior debt, and A$40 million from its cash reserves. The transaction is expected to close in June 2021.

The combined entity will be Australia’s largest retail wealth manager with A$510 billion in funds under management, advice and administration (FUMA); its largest investment advisory business with a network of 1,884 advisors; and its second-largest superannuation provider with FUMA of A$173 billion.

“As the financial service industry reshapes, a much bigger and better IOOF will position it at the forefront of the industry transformation. In this new era, and in response to changing societal and technological needs, the new IOOF will have the ability to offer unmatched choice and accessibility of quality financial advisory and wealth management services to all Australians,” Renato Mota, CEO of IOOF, said in a statement. 

Founded in 1885 as The Mutual Life & Citizen’s Assurance Co, MLC had more than 1.1 million clients, A$111 billion in funds under administration and A$158 billion in assets under management as of June. IOOF, which was established 40 years earlier, had 1.1 million clients and A$202 billion in FUMA as of June.

Separate from the bank divestments, further consolidation is seen as inevitable in Australia’s superannuation space. A KPMG report published in June suggested there could be a 60% fall in the number of funds over the next decade. It expects industry funds to number just 12 by 2019, down from 38 today, with retail funds set to shrink from 118 to 52.

Recent mergers include First State Super and VicSuper, which has created a A$125 billion behemoth that will shortly be renamed Aware Super. SunSuper is also in the process of merging with QSuper, a combination that could result in Australia’s largest superannuation manager with A$195 billion in assets.

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• Topics
• Australasia
• LPs
• Australia
• M&A
• MLC Private Equity