All eyes on AMP now MLC a done deal

AMP could be the next wealth management major to be sold off. Picture: Hollie Adams

Three other private equity firms in the final stages to buy NAB’s MLC wealth management business are understood to have put in offers that valued the business at a range of about $1 billion to $1.3bn.

The underbidders included JC Flowers, advised by JPMorgan, CC Capital, advised by Credit Suisse and Platinum, which was advised by Gresham in the Macquarie Capital and Morgan Stanley-run contest.

DataRoom understands that only IOOF and Platinum were willing to take the advice side of the MLC business alongside the platform.

The revelation comes as IOOF on Monday confirmed a deal to buy MLC for $1.44bn and plans to raise just over $1bn of equity at $3.50 per share.

While IOOF’s price equated to between 16 and 17 times the earnings of the business, the understanding is that others were offering between 12 and 14 times.

Analysts say an acquisition of MLC made more sense for an industry player rather than a private equity firm, which would have had to outlay about $600m building a business from scratch by developing new platforms, whereas IOOF can use its own.

IOOF is expected to strip out costs for MLC by relocating its back-office administration to more affordable markets and some suspect it could make $3bn from the deal, which will see it double its money over time as it runs down the operation.

Some have shown surprise at the price, which enables IOOF to double its money.

The talk in the market was that NAB was asking up to $3.5bn for the operation, which provides investment, superannuation and financial advice to corporate, institutional, and retail customers.

This price would have put the transaction out of IOOF’s reach.

Other analysts say that the price paid by IOOF was always what they believed the business was worth, given the challenges in successfully running such an operation, as highlighted by the Hayne royal commission.

NAB has spent about $1bn on MLC wealth, but has taken out dividends along the way, and the poor returns have proved that the ownership has proved a difficult experience for the bank.

It purchased MLC from Lendlease in 2000 for $4.56bn and in 2016, the bank sold 80 per cent of its life insurance operations in MLC to Nippon Life for $2.4bn.

Other banks have received limited returns on their wealth management operations and sold them for discounts.

ANZ also divested its pensions and investments business OnePath to IOOF last year for $850m.

This was after it sold its life insurance business to Swiss giant Zurich in 2017.

AMP tipped to be next

Now all the attention turns to AMP’s wealth management business, with a break-up of the company now widely expected.

AMP would also have to likely sell its wealth management business for a discounted price, and while the operation makes sense for IOOF, some believe it is also worth closely watching the next moves of the Colonial First State business, owned by Kohlberg Kravis Roberts and the CBA.

KKR always wanted MLC, but could not get the regulatory approval fast enough for its 55 per cent stake in Colonial First State for $1.7bn to complete the MLC transaction, and if a break up of AMP happens around March next year, it could prove perfect timing for KKR.

KKR paid 15 times earnings for the CFS business, but it was of higher quality with fewer legacy issues.

The US-based private equity firm has looked at AMP with Macquarie Group in the past, so the pair could potentially regroup and take out the whole business.