Dexus swoops on AMP property unit as demerger plan for Collimate Capital dumped
AMP is preparing to announce a break-up of its asset management business, effectively ending hopes of a demerger that would see an ASX listing for its Collimate Capital unit.
AMP is preparing to announce a historic break-up of its prized asset management business, effectively ending hopes of a demerger that would see an ASX listing for its Collimate Capital unit.
The private markets spin-off by the beleaguered asset and wealth management company is being dumped in favour of carving up and selling the real estate and infrastructure businesses. Sources said Dexus would announce an acquisition of the local AMP private markets operations, rebranded Collimate Capital, as early as this week in a deal expected to be between $200m and $300m.
The purchase would more than double this size of the Dexus funds empire from about $27bn now and position it as a leader in real asset management, and would be debt-funded.
AMP and Dexus declined to comment on Sunday.
The remaining value of the Collimate Capital business lies in AMP’s global infrastructure operations. But the deal structure there will be the key to determining a final price, and in particular whether excess investment returns – known as the carry paid to fund managers – are included or excluded from the terms.
The international business, being fought over by US groups Apollo Global Management and DigitalBridge, will be pitched as the best exit available for shareholders if AMP can strike a transaction at the right price.
The sales could also refresh AMP’s balance sheet and deliver the group the firepower to pursue its strategies in the remaining banking and wealth management arms. AMP has been under pressure over the past four years as underperformance and governance woes plagued the company.
AMP is likely to pitch the Dexus deal as giving it capacity to replenish its existing operations and even expand in areas where it is recovering. AMP’s local property and infrastructure operations have investments in assets including Quay Quarter Sydney, Melbourne’s Collins Place, Launceston and Melbourne airports.
The parent entity retains one of the biggest wealth brands in the country, and the Alexis George-led company may seek to reboot the bank and wealth divisions after years of corporate struggle. The unravelling of the private markets spin-off may, however, spark a sell-off of the remaining AMP assets. Collimate Capital has about $44bn in assets under management, with the real estate business slightly larger than infrastructure.
Dropping the demerger would save on corporate costs associated with listing the business, which was to be chaired by former banker Patrick Snowball and counted Shawn Johnson as its chief executive. Collimate Capital has a team of about 500 real estate professionals and there are more than 50 investment professionals in the infrastructure equity business. The real estate business has 59 institutional clients, mainly in Australia, while the infrastructure equity business has more than 245 institutional clients.
The key to any transaction will be the final price AMP reaps for the businesses being sold, with the group seen as salvaging some value rather than risking a failed demerger amid rocky equity markets. Parts of the private markets platform were haemorrhaging funds and the business lost clout as some fundraising efforts stalled, although Ms George expressed optimism at AMP’s February results.
AMP’s earlier efforts to deal with other property players were inconclusive – partly as they did not have the correct fit with the institutional client base, and the manager’s inability to tie down earlier transactions prompted confusion among investors. The company also had to fight off challenges to a major infrastructure fund from suitors Plenary, Morrison and Co, and Palisade Investment Partners last year.
Dexus will be billed as a leading platform able to stabilise and then rebuild the once-great AMP real estate operation. It is banking on its deep ties to local and offshore funds as part of its pitch that it can also house the infrastructure unit, which will remain separately governed. AMP is likely to salvage some goodwill by keeping the local property operation together, with the new manager able to offer an almost unbeatable pipeline of major developments to incoming funds.
The deal could bring certainty to property investors after years of uncertainty in which the business has suffered from the corporate governance issues that struck AMP amid board ructions and senior management departures.
A separate transaction may also see the international infrastructure equity arm sold off, with a contest between Apollo and rival DigitalBridge also coming to a head. The former is believed to be in a stronger position.
The plan of spinning off the Collimate Capital business has been debated by investors who were uncertain whether it would release enough AMP value.
Hamish Carlisle, principal of AMP investor Merlon Capital Partners, on Sunday said in the end it hinged on what maximised shareholder value.
“The spin-off is looking increasingly difficult post the sale of the (infrastructure) debt business, and the margins the company outlined for the spun-out entity were significantly lower than those of potential acquirers, which would imply the value of it will be greater to a potential acquirer,” he added.
“Our strong position has been, and remains, that AMP is overcapitalised and any additional capital generated from private markets transactions should be returned to shareholders.”
In February, the private markets business dampened expectations and said it was only targeting a 20-25 per cent earnings margin this financial year against its longer-term target of 30-35 per cent.
That is markedly lower than bigger rivals including Apollo, Brookfield and Macquarie, whose respective fee-related earnings as a percentage of revenue sit at about 50 per cent or above.
UBS analyst Scott Russell wrote after AMP’s February results that a sale of the remaining infrastructure equity and real estate businesses “would be a simpler and cheaper path than demerger”.
The UBS analyst said that operationally the businesses continued to deteriorate with funds under management continuing to fall and fourth quarter flows remaining net negative, and earnings margins remain low against rivals.
“We are not convinced that demerging PrivateMarketsCo will unlock value for shareholders,” Mr Russell told clients.
Citigroup analysts in February valued the business at about $1.46bn and noted it had taken a hit from losing its AMP Capital Diversified Property Fund to Dexus and by cutting fees on other vehicles.
“While it intends to take out costs en route to a $275m-$280m cost base by fiscal 2023, this suggests it could be a tough year overall albeit seed and sponsor income is expected to increase,” analyst Nigel Pittaway wrote.
Look inside: The landmark HQ kicking major workplace goals
A company founded in an attic may have just provided the blueprint for employers wanting to woo workers back to the office.
River views seal the deal for luxury apartment buyers
Luxury Brisbane apartments will take in views stretching from the iconic Story Bridge across to Howard Smith Wharves, New Farm and out to Moreton Bay.