Strategic jockeying amid financial services consolidation

The executive chairman of Count Financial, Barry Lambert, recently demonstrated the degree to which consolidation has become a focal point in the Australian financial services industry. Mike Taylor reports.

The executive chairman of Count Financial, Barry Lambert, last week demonstrated the degree to which consolidation has become a focal point in the Australian financial services industry.

Commenting on Count’s acquisition of a 5 per cent stake in rival financial services firm DKN, Lambert made clear that it was a strategic move based on the inevitability of industry consolidation.

It also represented a piece of classic positioning on the part of Count, which took a similar approach to Mortgage Choice, buying a strategic minor shareholding, having its initial advances rejected and then quietly growing the shareholding over time.

DKN can expect much the same, with Lambert having told Money Management that he could see the benefits inherent in growing the stake in circumstances where a considerable number of synergies exist between the operations of the two financial services groups.

The Count chairman was also clearly focused on the fact that Zurich Financial Services might eventually be disposed towards exiting its 31 per cent stake in DKN — a legacy issue from the transaction that saw DKN acquire Lonsdale from Zurich in 2007.

Since that time, Zurich has also disposed of its interest in advisory group Financial Lifestyle Solutions to Millennium 3.

While Zurich retains 31 per cent of DKN, 19 per cent is owned by IOOF Holdings, which also now encompasses Australian Wealth Management and Skandia. Interestingly, it has also been suggested that ANZ has shown an interest in acquiring IOOF.

Also in play is the make-up of the shareholding in Professional Investment Services (PIS) in circumstances where National Australia Bank (NAB) did not make it part and parcel of its acquisition of Aviva’s wealth management operations in Australia.

PIS has indicated that a number of financial institutions have been undertaking due diligence with a view to acquiring a shareholding in the planner-heavy dealer group.

Unconfirmed reports last year suggested that Count might also be interested in PIS.

In the meantime, the Australian Competition and Consumer Commission is still seeking to determine whether it should approve NAB’s bid for AXA Asia Pacific, while AMP continues to bide its time after having its own takeover of AXA Asia Pacific shunned by the company’s Australian board.

For its part, the board of DKN has indicated a negative attitude to the Count move, making clear that it regards the 5 per cent stake held by Count as being "a small equity position".

In an announcement to the Australian Securities Exchange (ASX) last week, DKN chief executive Phil Butterworth pointed out that Zurich and IOOF were the largest shareholders in the DKN business and were committed to its current strategy.

"Given the strength of the DKN business model and its quality network of wealth management practices through Lonsdale, its equity partners and 200 boutique practices utilising its competitive platform offering, the DKN Board is not surprised that we are attracting new shareholders like Count," Butterworth’s ASX statement said.

How the Count move on DKN plays out appears likely to depend in large measure on the attitude adopted by the managing director of IOOF, Chris Kelaher, who as the chief executive of Australian Wealth Management was a driving force behind the merger with IOOF.

While Zurich might possess the larger shareholding in DKN, IOOF has always appeared to carry the greater strategic influence.

In the meantime, industry analysts have turned their minds to what AMP will do if NAB’s bid for AXA Asia Pacific proves successful.

A broad consensus is emerging that AMP cannot afford to sit on the sidelines while its major competitors become larger and a range of targets have been discussed, not the least of which being Perpetual.