KKR, Perpetual talks for corporate trust and wealth businesses ‘ongoing’

Wealth manager looks to dampen speculation on sale price, says no deal done yet as talks continue.

Rob Adams is the chief executive of Perpetual. John Feder/The Australian.

Perpetual has sought to dampen speculation on the sale of its corporate trust and wealth businesses, saying talks with Kohlberg Kravis Roberts are ongoing but no deal has been done yet.

The Australian’s DataRoom column on Wednesday reported Perpetual was likely to secure a knockout price for its corporate trust and wealth units from KKR, with one market assessment being a sale price of about $2.1bn.

This estimate was based on one market expert saying similar corporate trust businesses had previously sold for about 15 times their net profit, and wealth management 12 times. Perpetual’s corporate trust generates about $85m of annual net profit, while the wealth management unit about $50m.

Perpetual on Wednesday said negotiations with KKR were ongoing but cautioned investors “not to rely on any speculation regarding the ongoing negotiations, including any price or transaction terms that may be achieved”.

Perpetual said it would provide a detailed update on the strategic review by May 8, “however there is no certainty that a transaction with KKR will eventuate,” the company said.

It comes after Perpetual on Monday confirmed it was in exclusive talks with KKR on the sale of the businesses, with the global private equity giant the preferred bidder over a joint tilt from TA Associates and EQT. Exclusivity with KKR runs out on May 7.

The Australian’s DataRoom column first revealed that KKR was in talks for the Perpetual assets in December, with the private equity giant firming up as the favourite in recent weeks.

Perpetual has been running the sale process on its corporate trust and wealth management divisions for a number of months after it received a $3bn takeover bid from Soul Patts last year. Soul Patts is Perpetual’s largest shareholder with about 12 per cent. Perpetual’s response to that proposal was that it undervalued its business.

A strategic review of its operations, announced by Perpetual in December as it fobbed off Soul Patts’ advances, was aimed at unlocking value from the corporate trust and wealth divisions following its $2.5bn acquisition of rival Pendal Group earlier in 2023.

Offloading the corporate trust and wealth arms would see Perpetual become a pure-play asset management offering. The wealth manager has beefed up this side of the business in recent years, including through bolt-on acquisitions Trillium and Barrow Hanley.

But the asset management operation has endured its own challenges amid the flight to passive investing. In a quarterly update last week, Perpetual said it had suffered $5.2bn in net outflows in the March quarter, with $2.2bn flowing out from a single strategy.

The bulk of the outflows – $3.5bn – were pulled from boutique J O Hambro Capital Management, with its UK Dynamic strategy losing $2.2bn over the three months after portfolio manager Alex Savvides left the group.

Both the corporate trust and wealth operations provide a degree of protection against the more competitive asset management industry, Morningstar analyst Shaun Ler said. “Ultimately, we think both the private wealth and corporate trust segments can better withstand the threat of competition, are subject to less fee pressure, and can generate more predictable earnings growth relative to its funds management operations,” Mr Ler told clients.

But Perpetual may be pressured to take action, he added.

“With reports of multiple suitors and a recent, rejected $27 per share indicative offer from Washington H Soul Pattinson, some shareholders may prefer to expedite a capital return rather than await a potential turnaround in flows and earnings recovery.”

Luminis Partners, Bank of America and Goldman Sachs are advising Perpetual on the strategic review and sale process. KKR is advised by Jefferies.