Insignia rejects Bain Capital’s $2.7bn takeover bid

Insignia Financial has rejected Bain Capital’s $2.7bn takeover offer, described by its largest shareholder as “highly opportunistic”.

Insignia Financial chief executive Scott Hartley. Picture: Arsineh Houspian

Wealth manager Insignia Financial has rejected Bain Capital’s $2.7bn takeover bid, arguing it undervalues the company as it embarks on a restructure under chief executive Scott Hartley.

The private equity firm’s $4 per share offer – lobbed after market close last Thursday – represented an 18 per cent premium on Insignia’s share price at the time.

But in a statement to the ASX on Wednesday, Insignia said the non-binding proposal did not “adequately represent fair value” for the company.

“The Insignia Financial board has carefully considered the terms of the indicative proposal including obtaining advice from its financial and legal advisers,” the company said.

“The Insignia Financial board believes that, based on its view of the fundamental value of Insignia Financial, the proposed transaction does not adequately represent fair value for IFL shareholders in the context of a change of control transaction and that it is not in the best interests of IFL shareholders to engage with Bain Capital in relation to the indicative proposal.”

The rejection comes after Insignia’s largest shareholder, Tanarra Capital, described the approach as “highly opportunistic”.

Investment banker John Wylie, whose investment firm Tanarra Capital owns 15.2 per cent of Insignia, said on Tuesday that Tanarra had not had any discussions with Bain Capital regarding its proposal for Insignia, “nor encouraged them in any way”.

“We want the Insignia management team to remain focused on the business improvement plan they are in the early stages of delivering,” he said in a statement to The Australian.

Insignia, which administers $320bn of funds, is in the early stages of a turnaround plan under Mr Hartley, who took over as chief executive in March after running AMP’s wealth management business.

At an investor and strategy day presentation last month, Insignia said it wanted to become the country’s leading and most efficient wealth management company by 2030 through technology and product innovation, cost optimisation and simplification.

After a shake up of its leadership team, the company previously known as IOOF, hopes to reduce operating expenditure by about $200m by 2030.

Morgan Stanley analysts told clients last week that Bain Capital’s bid presented “a suitable premium for shareholders to give it serious consideration”, given Insignia had been trading at around $2.30 a share as recently as September.

“The offer also places IFL on almost the same trading multiples as AMP, with the latter offering a stronger balance sheet, better flows and a proven cost-out story,” they said in a note to clients.

“Our current UW (underweight) view on IFL is premised on its wealth outflows, with several platform integrations elevating outflow risks plus placing pressure on free cash flows. “Dividend is on hold and gearing is stretched. New management’s strategy refresh offers promise into FY28, but there are no stepping stones to track cost progress.”

Insignia shares fell 16 per cent to $2.47 on the day of the company’s annual results announcement in August, when the company paused dividends after posting a loss of $185.3m due to higher remediation payouts and transformation and separation costs.

The company has said dividends are likely to remain paused in the first half of 2024-25, in order to “maintain balance sheet flexibility and fund initiatives to deliver long-term value”.

In a response to The Australian’s CEO survey 2025, Mr Hartley said 2025 would be “a big year” for the company, as it looked to relaunch the MLC wealth management brand following its acquisition from NAB, and as the company started to execute on its 2030 vision and strategy.

The program to separate MLC from NAB was only finalised a few weeks ago, more than three years after the $1.4bn acquisition.

Boston-based Bain Capital purchased aged-care provider Estia last year for $838m, and acquired Virgin Australia out of administration in 2020.

Some observers believe its initial play for Insignia could kickstart a bidding war for the wealth manager.

Insignia has engaged Citigroup and Gresham Advisory Partners as its financial advisers and King & Wood Mallesons as its legal adviser.

The company’s shares closed down 4.2 per cent on Wednesday at $3.45.

Originally published as Insignia rejects Bain Capital’s $2.7bn takeover bid