Why private equity wants a slice of our retail super with Insignia

A year into the job, Insignia boss Scott Hartley has navigated a takeover from New York-based CC Capital. Picture: John Feder/The Australian

Investment agitator John Wylie got the ball rolling on Insignia two years ago, taking aim at the former IOOF that was unloved and out of shape.

Pressure heaped on by Wylie, who has a 15.7 per cent stake, forced out former and long term chief executive Renato Mota and got Insignia promising to shape up.

New Insignia CEO Scott Harley, who is a former AMP executive, has a plan to do this. But private equity wants to get in first.

From the outside, Insignia should be in a sweet spot.

It’s a blue chip wealth manager with $321bn in funds sitting on its platforms and under management. It dominates share in key segments of one of the wealthiest markets in the world. Remarkably, it has more tied financial advisers than AMP, it operates more platforms than anyone and is the custodian of the MLC's rolled gold wealth franchise.

Insignia has a dominant position in one of the wealthiest markets in the world. Picture: Gaye Gerard/NewsWire

However, Insignia is a case of one acquisition too many. It piled on buyout after buyout as banks were rushing to get out of wealth. Notably, it was the ANZ wealth business for $850m in 2019, and then the blockbuster $1.4bn MLC deal a year later. Before then, IOOF itself was built up through a string of acquisitions, including Australian Wealth Management – that delivered more brands, platforms and adviser networks under the one roof. The decade long takeover spree has added to debt on the balance sheet.

This is the where private equity has sniffed out opportunity. First with Bain approaching in December and running the ruler over Insignia, and after six months of talks and due diligence, New York-based CC Capital has now secured an agreed $3.3bn deal. Following an unofficial bidding war with Bain, CC Capital sweetened its final offer to $4.80 a share from $4.30.

Why the interest?

Insignia is scalable, with strong brands like MLC, and the Australian market needs quality advice. The catch? The business is messy and costly; financial planners are complicated to manage; and the business is falling well short of its potential. In other words, it has turnaround all over it.

The CC Capital deal, dubbed Project Juno by bankers, got across the line with through a $4.80 a share cash offer which represents nearly 57 per cent premium to Insignia's shares pre-Bain approach.

Wealth managers should trade on share market sentiment, and this is the size of the opportunity for CC Capital, which has owned names like Getty Images, Ceres Life, Wilshire and Dun & Bradsteet. Before the Bain approach in December, Insignia was tracking near a record low even when share markets were tracking near record highs.

The increase in bids turned Insignia into a rare outperformer against the broader ASX, but it remains less than half the value before the company and former boss Chris Kelaher were skewered in the banking royal commission.

It’s all history, and Hartley’s challenge has been to drive down costs at Insignia and making the businesses work together.

He’s already started this by setting out his 2030 blueprint and consolidating the costly multiple wrap platforms into one. There’s still four different platforms servicing super funds, although this is going to be scaled back with tech provider SS&C overseeing the tech functions and administration. This will see 1300 staff move over to SS&C from this month, representing a big saving and helping to hit the $200m annualised savings by 2030.

Looking ahead, the long-neglected MLC brand is expected to get more investment from Insignia as the hero brand.

Hartley says CC Capital is a proven long-term investor, and this is more suited to market facing businesses like Insignia while it works through a turnaround.

“You’ve got to be able to stomach a bit of volatility on the way on the journey to a better place,” Hartley tells The Australian. “CC Capital represent more permanent capital and approach. This is a better structure for us”.

CC Capital has timed the bid to perfection. Quarterly figures released by Insignia, just like AMP earlier this week, are showing the big wealth managers are starting to find their footing again after being in the wilderness for years.

Insignia experienced $1.1bn in inflows during the June quarter. The super master trust flows have almost hit break even after a long period of outflows. Much of the inflows are coming from corporate super.

A little over a year into the role, Hartley expects to remain with Insignia to see through the strategy he started, although that remains to be finalised.

CC Capital “bought into our 2030, vision and are very happy with management and want to support the execution of that strategy”.

“My full intention is to stick around,” he adds.