ANZ confirms discussions with KKR to snap up MYOB, analysts and investors critical of proposal

ANZ’s potential $4bn-plus purchase of MYOB has triggered fierce investor criticism, amid questions about the acquisition’s logic.

ANZ CEO Shayne Elliott is assessing ways to beef up its business banking operations, including a purchase of MYOB. Picture: Arsineh Houspian

ANZ’s potential $4bn-plus purchase of accounting technology firm MYOB has triggered fierce investor criticism, amid questions about the acquisition’s logic and the company’s move into non-banking businesses.

ANZ on Wednesday confirmed talks with private equity behemoth KKR to buy MYOB, as part of a plan to bolster its presence in small business banking and increase its customer engagement through technology.

While the bank said discussions with KKR about a potential MYOB purchase were ongoing and the parties were “yet to reach agreement”, the setting up of a non-operating holding company structure by ANZ lays the groundwork for a deal. MYOB is a provider of business management, financial and accounting software for small and medium businesses and enterprise and accounting practice customers.

“ANZ will make an announcement to the market if the negotiations are successfully completed and an agreement is entered into,” the bank said.

The deliberations around the MYOB deal come as ANZ – led by chief executive Shayne Elliott – seeks to step up in the business banking and lending market by growing market share while also getting access to a technology platform that provides deeper engagement. That comes against the backdrop of a slowdown in the home loan sector as interest rates sharply rise.

Sources close to the transaction said ANZ’s negotiations with KKR over MYOB were at an advanced stage and the bank’s board was due to further discuss the mooted purchase when it next meets. The deal would offer ANZ revenue synergies and the bank plans to use the non-operating holding company structure to house MYOB should it proceed with the transaction. A transaction may be sealed as early as this week, but requires the green light from the competition regulator and the New Zealand Overseas Investments Office.

ANZ on Wednesday confirmed talks with private equity behemoth KKR to buy MYOB, as part of a plan to bolster its presence in small business banking and increase its customer engagement through technology. Picture: NCA NewsWire / David Geraghty

Bank investors were, however, highly critical of ANZ’s proposed acquisition and move into the technology sector. The bank’s stock fell 1.2 per cent to $22.43 on Wednesday, bucking a 0.2 per cent gain in the ASX 200.

“I really struggle to see the thought process here around the bank’s focus, in what could be a trying period over the next six-to-12 months,” said Matthew Haupt, the lead portfolio manager at WAM Leaders. “Is the timing right at the moment, if at all? It’s (MYOB) not an amazing growth business.”

Opal Capital Management‘s Omkar Joshi said: “It‘s difficult to see how the acquisition of a non-core business, which is number two in its respective market (to Xero), will add value to ANZ.”

Others served up a harsher verdict. “It’s just another disaster, every time they try something like this it’s a failure,” said a banking analyst, who declined to be named. He mentioned ANZ’s push into wealth management, which has since been unwound, as an example. The analyst estimated ANZ could use an underwritten dividend reinvestment plan – which provides an option for investors to take new shares instead of dividends – of $2bn to help fund the MYOB purchase.

ANZ’s common-equity tier one capital ratio stood at 11.5 per cent at March 31, above the banking regulator’s 10.5 per cent threshold. ANZ has bought back shares from investors amounting to $5.5bn over the last five years.

The non-operating holding company structure would mirror the structure of Macquarie giving ANZ a banking and non-banking entity, with the latter used for adjacent businesses typically subject to less regulation.

Investors will be assessing what price ANZ may be prepared to pay for MYOB and how it would fund the acquisition.

But ANZ has missed out on other potential acquisitions in recent years, including being an underbidder to Bank of Queensland on the purchase of ME Bank last year. ANZ was also an interested suitor in Domain about four years ago, ahead of it listing on the ASX.

In May, Mr Elliott said there were more attractive opportunities for ANZ outside home loans, which were likely to grow at a slower rate as variable rates rose in response to official rises.

On the non-operating holding company structure Mr Elliott added: “As we think about the future and the services that we provide to customers to help them own their home faster or run their businesses better. Increasingly, the way we do that is providing non-banking services around the edges. Ancillary, related, but not really banking.”

He used the example of digital cashback company Cashrewards, which was acquired by ANZ.

But some investors are likely to want ANZ to focus on its bread and butter businesses, particularly after 2021 was marred by processing issues in its mortgage business, which it has worked to rectify.

KKR – which acquired ASX-listed MYOB in 2019 in two phases for about $2.4bn – is taking advice from Credit Suisse, while ANZ is drawing on external advice from Macquarie Capital and Jarden. Prior to listing on the ASX MYOB was owned by private equity group Bain Capital, which purchased the company from buyout groups Archer Capital and HarbourVest Partners.

MYOB saw a small rise in revenue for 2020 to $402.5m, from $401.7m in 2019, accounts lodged with the corporate regulator show. It posted after-tax losses of $6.5m in 2020 narrower, than the $12.9m losses in 2019.

National Australia Bank is the largest player in the local business banking market and Commonwealth Bank is seeking to ramp up its presence in the space. Business customers are typically less sensitive to interest rate rises than mortgage borrowers.