Ares bids for Australian financial services player AMP

AMP said in a statement that it had received a proposal from Ares to buy 100% of the business at an implied value of A$1.85 per share but cautioned that discussions are at a very preliminary stage. The financial services player – which has already sold its insurance operation – announced in September that further divestments were under consideration as part of efforts to create “a simpler, leaner business.”

AMP’s stock jumped 19.5% to close at A$1.53 on October 30. The business has a market capitalization of approximately A$4.4 billion ($3.1 billion).

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.

AMP, which has interests spanning wealth management, banking and investment management, was arguably the most heavily criticized of all financial services companies. The Royal Commission found it had charged clients for financial advice that was not provided and misled regulators on numerous occasions. This led to the resignation of CEO Craig Meller.

AMP pledged to improve its culture, governance, accountability and processes. Earlier this year, David Murray, who was appointed chairman in 2018 to help rebuild trust in the company alongside new CEO Francesco De Ferrari, stepped down over the handling of a sexual harassment scandal.

The company generated A$5.8 billion in net income from insurance premiums and fees in the 12 months ended December 2019, down from A$6.4 billion the previous year. Meanwhile, a net profit of A$28 million became a net loss of A$2.5 billion.

Net cash outflows from the Australia wealth management business rose from A$4 billion to A$6.3 billion, including A$2.4 billion in pension payments – a development linked to the Royal Commission’s findings. Profit from the division fell from A$363 million to A$182 million. AMP also recognized a non-cash impairment of A$2.3 billion in the Australia and New Zealand wealth management business.

This outflow trend continued in the first six months of 2020. A total of A$4.4 billion, including A$1.2 billion in pension payments, was withdrawn by investors, up from A$3.1 billion a year earlier. Profit slipped from A$79 million to A$59 million.

KKR became the first private equity investor to secure a wealth management asset earlier this year, with an agreement to buy a 55% stake in Colonial First State from CBA at a valuation of A$3.1 billion. A A$1.44 billion sale of NAB’s wealth management arm to IOOF Holdings was agreed in August.

Ares has $179 billion in assets globally, including $26.7 billion in private equity, $131.2 billion in credit, and $14.4 billion in real estate.

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• Topics
• Australasia
• Buyouts
• Financials
• Australia
• Ares Management
• AMP Capital Investors
• Financial Services