Insignia's $2.7bn bid ‘opens the floodgates’ for US PE deals

The potential $2.7 billion deal for Insignia from US private equity player Bain Capital could be hard for shareholders to resist and would “open the floodgates” for US firms looking at Australia.

Last week, it was announced that US private equity giant Bain Capital had made a preliminary offering for Iicensee Insignia Financial, offering $4 per share, which was a 30 per cent uplift on Insignia’s share price at the time and values the company at $2.7 billion.

The share price rose from $3.06 to $3.72 in the hours following the Bain announcement.

Colin Williams, founder of Wealth Data, said shareholders may find it “hard to say no” to the bid after a rough ride since the Hayne royal commission. Shares once peaked at more than $10 in 2017, but have come down by almost 70 per cent since those days.

Speaking to Money Management, he said: “It is an interesting deal, the simple premise of $4 per share could be attractive to Insignia’s long-suffering shareholders. They used to be $10, but then we had the royal commission, some major departures and it never really recovered.

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“Insignia has been really under the pump lately, so it could be hard to say no.” 

Williams referenced the 2020 deal between KKR and Colonial First State (CFS), which could be viewed in the US as an example of success in financial advice in Australia. This saw KKR, currently in talks to acquire Perpetual’s wealth management business, acquire 55 per cent of CFS from the Commonwealth Bank.

As for what a successful deal with Insignia could look like, financial services M&A expert Tony Beaven said Bain will be looking to achieve a 20 per cent margin over the next five years. 

“The private equity rationale is they believe they can get a 20 per cent margin by investing in the business, they will look to see where they can make efficiencies to ensure the company can grow and how they can support it. After that, they might look to sell it onto another PE firm or they might retain it and keep the business going.

“Insignia is already undergoing integrating various businesses so Bain will bring in implementation experts who can help with that, but doing that on a day-to-day basis at the same time as bringing on Bain will be a huge challenge for Insignia.” 

One particular quirk in the financial services landscape, he said, is that it can be hard to break these businesses up. This is because it runs the risk of advisers taking funds to a competitor, whereas private equity will want to retain as much funds under management (FUM) as possible.

At its latest Investor Day, chief executive Scott Hartley unveiled his priorities for Insignia for the next five years to cut costs and maximise scale which includes growing financial advice, innovating wealth solutions, continuing cost excellence, becoming an AI-enabled company and creating a high-performance culture.

Beaven cautioned Hartley that, compared to Australian firms, US businesses will expect a lot of oversight and scrutiny of their investment if the deal proceeds. 

“US firms are very focused on the bottom line. [Hartley] will be having regular meetings with Bain for an overview of the revenue, the FUM, the strategic growth and the risks. US firms are very smart and sophisticated, but it is all about the revenue. They are very financially focused and will want to see a return.”

Future M&A activity

Even if Insignia rejects the initial offer in its current form, Beaven said it is likely Bain Capital will return with a better offer in order to secure the deal. The US dollar/Australian dollar exchange rate is also very enticing from a currency perspective for US firms to make deals now, he added.

“If Bain puts in an offer and it’s rejected, they will just come back with another offer because they have already done the due diligence and the work. It’s going to be in the US newspapers now, so other firms will likely look at it too. They are gathering intelligence all the time.

“This will open the floodgates for private equity into Australia.”

Bain already has offices in Sydney and Melbourne, and Beaven said it is unlikely they will have gone to that effort without targets in mind.

“They have already set up Australian operations to be on the ground here, you don’t send people all the way here from the US without looking at a few opportunities. They want a foothold in the Australian market so even if Insignia rejects them, they will have a Plan B and a Plan C.”

Earlier this year, Money Management covered the deal between AZ NGA and US investment giant Oaktree Capital Management which made a $240 million investment, and flagged this was likely to be the first of many deals to come.

James Chown, partner in Deloitte’s M&A division, said: “We’re definitely expecting to see volumes increase and the size of deals increase in 2025. We’re seeing a lot of interest in the sector from private equity and institutional capital which, we think, will see some of the larger financial advice businesses transact – whether it’s partnerships, minority stakes or large majority stakes.

“We’ve had offshore managers looking at the market and trying to understand how to play the market. That’s whether they come in with an asset management offering, an SMA offering, or they want to move into the advice offering.”