After Pendal’s rejection, Perpetual boss Rob Adams sees good mergers and acquisitions value

Perpetual managing director Rob Adams is looking ahead after Pendal rejected a takeover offer and he sees a ‘rich environment for M&A’ as valuations come down.

Perpetual CEO Rob Adams sees good M&A value.

Despite a “resounding rejection”, Perpetual managing director Rob Adams does not feel like a spurned lover.

It’s been five weeks since his firm’s $2.4bn takeover offer for rival Pendal was knocked back and the man and his company have moved on mentally.

“It continues to be a very rich environment for active M&A right now, and perhaps even more so as valuations have come down,” Mr Adams said after speaking at the Macquarie conference in Sydney. “We are seriously looking at a number of opportunities.” Mr Adams said those opportunities were both in Australia and abroad. Perpetual's ambitious share and scrip takeover offer for Pendal would have created a company with close to $230bn of funds under management, giving Perpetual shareholders 52 per cent of the combined company.

Perpetual wouldn’t confirm if it would raise its offer for Pendal if a rival bidder were to enter the fray but said that prospect would not make it change its view of the value in Pendal.

“We put in a proposal to Pendal, and that proposal was rejected,” Mr Adams said. “It was a resounding rejection. We are very disciplined when we look at M&A and that’s the way it’s going to stay. We don’t have to do that deal. We have terrific momentum across the board in our business.”

The bid represented a 39 per cent premium to Pendal’s closing price on April 1, the day before the offer. Mr Adams told investors on Thursday that Perpetual was extremely well placed in the current market conditions.

“We are well and truly in a value cycle and it feels like it’s going to be a multi year event,” Mr Adams said, adding the funds management giant was seeing “80 per cent of our strategies outperforming over three years”. He said business remained in line with its third-quarter update in April, described at the time as a “mixed” result by analysts.

Perpetual’s trustee business notched up better-than-expected fee growth during the period and revealed a positive outlook for its international funds unit. However, it experienced some outflows in its Australian and global asset fund management units. Total assets dipped below $100bn.

Pendal, a multi-boutique firm, most recently reported funds under management of $125bn.

Its board knocked back Perpetual’s offer, saying it “significantly undervalues” the fund manager, and at the same time announced a defensive $100m buyback of shares. Pendal has distribution assets across Europe, the US and Australia.

Following the rejection, Credit Suisse analysts said: “Pendal did not open their books to Perpetual for due diligence (which could potentially lead to a binding offer) which suggests the offer may be someway below the board‘s expectations.” They noted Pendal was carrying about $250m in net cash at the end of financial year 2021 and a further $260m of seed investments.

Whether Perpetual comes back to the table remains to be seen. Potential rival bidders are likely to be taking a close look. At the same time, the airing of the bid may have been designed to flush out other bidders.

Mr Adams has overseen six takeovers since joining the fund manager.

“We are on the hunt for world-class opportunities. We have a very active pipeline. But we are going to be highly selective.”

Credit Suisse analysts said: “Pendal did not open their books to Perpetual for due diligence … which suggests the offer may be someway below the board‘s expectations.”