‘Oaktree is only the start’: Overseas bidders target financial advice

The strategic partnership with Oaktree Capital Management and AZ NGA will be “only the start” for overseas players looking to enter the Australian financial advice market, according to experts. 

In September, it was announced that US investment manager Oaktree Capital Management – which has $294 billion in assets under management – had entered into a strategic growth partnership where Oaktree would invest $240 million in AZ NGA.

Speaking at the time of the deal, AZ NGA chief executive Paul Barrett said: “Oaktree has invested in financial services platforms globally, such as Ascot Lloyd and Atomos, and we look forward to enhancing AZ NGA’s strong market position and sharing Oaktree’s seasoned investment philosophies to deliver even greater value to AZ NGA’s retail and wholesale clients.”

In a similar deal, US global private equity player KKR announced in May that it would be acquiring the corporate trust and wealth management business of Perpetual. KKR Australia co-head David Lang said the firm would look to retain both divisions as independent standalone businesses. 

Speaking to Money Management, M&A experts said these deals will likely just be the beginning of interest in Australia as the sector transforms itself following the Hayne royal commission. 

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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. 

Tony Beavan, financial services executive, said: “Firms are looking for those businesses which have sound business models, a good regulatory environment, growth potential, revenue potential and the human capabilities to achieve those targets.”

Regarding interest from overseas players, both agreed there is growing demand for international players to come to Australia. This echoes findings from an M&A report earlier this month by law firm Corrs Chambers Westgarth which stated foreign bidders represented more than half of its bidders for the first time in five years. 

Chown said: “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.”

Referencing the Oaktree deal, Beavan said: “With Oaktree buying AZ NGA, there will be more and more private equity backers who will want to set up processes here and you will absolutely see it take off, especially once interest rates come down.”

In particular, Beavan said the introduction of a new Consumer Duty – similar to Australia’s existing Best Interest Duty – in the UK has left potential acquirers nervous of any ramifications to that when investing in a UK company.

For example, wealth manager St James’ Place has been issuing refunds for ongoing advice fees or unsuitable advice where they experienced a financial loss. In its full-year results in February, the firm said it had set aside £426 million ($829 million) for potential refunds. 

“The impact of consumer duty is starting to bite in the UK which is stopping acquirers. It ensures firms are acting in the best interest of their clients, are creating fair value from the advice you are giving, and that there’s ethical oversight at both an adviser and at a product manufacturer level. It’s quite widespread,” he said. “Acquirers don’t want to find themselves liable for that.”

On the other hand, Australia is further ahead in terms of the regulatory landscape, having already dealt with remediation around advice fees and fees for no service.

“So people are looking at Australia and they see a lot of synergies, a competitive framework, higher ongoing advice fees, and an attractive market from a supply-demand perspective.”

Earlier this month, Count chief executive Hugh Humphrey, which itself conducted an acquisition of advice licensee Diverger in March, told Money Management that Australian firms are attractive post-royal commission, especially when compared to prices paid in the US.

“The businesses are profitable and they are valuable assets if you look at the prices being paid; that goes to show there are people who are willing to invest in this space.

“There’s been a lot of interest in financial advice from public and private capital, and I don’t think that’s going away. The two drivers are the assets themselves and the fact that there’s clarity around transformation now [since the RC]. It’s pretty clear where we’ve landed in having built high-quality profitable businesses.”

A final factor fuelling the rise of M&A is the potential for interest rates, which are currently held at 4.35 per cent, to come down next year. 

Deloitte’s Chown said a fall in interest rates, tipped to begin next February in Australia, would be beneficial for potential M&A bids.

“It should help drive more value because if the cost of debt goes down as interest rates go down, it’s easier for people to potentially borrow more money or they’re borrowing it at a lower rate, which allows them to do deals that make a return easier.

“We feel that with rates having been settled now for a while, and this general expectation that a rate cut is coming, has meant the last four to six months in particular have been conducive to M&A.”

Beavan agreed, stating: “When you have low interest rates, it’s awash with money and that’s what will happen over the next six to 12 months. It will be a more active environment, and businesses will be able to borrow more.”