Westpac delays final bids for $1bn-plus investment platform

Westpac has delayed final bids for its $1bn-plus investment platform unit by several weeks until the end of August.

The $1bn-plus sale process for Westpac’s investment platform unit has proven long and arduous, not helped by the latest delay in the deadline for final bids.

This column understands – in what comes as a further delay in the process – instead of being lodged by late next week, final binding offers are now due in the last week of August. In some consolation for investors, the new date for bids will still fall ahead of Westpac ruling off its financial year on September 30.

Westpac declined to comment on the process, which is part of a bigger divestment drive by the bank to simplify its business.

The delay was linked to the level of detail bidders were requiring of the bank during a detailed period of due diligence.

Indicative and non-binding bids for Westpac’s investment platform division came in as low as $1.2bn in April, below the bank’s expectations of $1.5bn-plus. While that may indicate a lack of fierce competitive tension, it’s also important to note that sharemarkets have fallen notably since the sale process kicked off earlier this year, which doesn't bode well for the price suitors will be willing to pay.

Westpac had $135.2bn in funds under administration on its platforms as at March 31, with $105bn of that sitting in the newer but lower-margin Panorama offering.

At a market update on Wednesday, Westpac chief executive Peter King said of the divestment process: “Having recently announced the super and investment transactions we are focused on announcing the platform sale in coming months.”

In May, Westpac entered an agreement to merge, through a successor fund transfer, its personal and corporate superannuation funds with Mercer Super Trust. The bank also agreed to offload its Advance Asset Management business to Mercer.

Westpac said the net effect of those deals was expected to be an after-tax gain of $225m, while separation and transaction costs were flagged at about $80m.

The auction of Westpac’s platform business is more complex and at a much larger scale. Even when a transaction is sealed by the bank it will require regulatory approval and a long transition and migration period.

A platform holds investments such as managed funds and shares in one place and is used by financial advisers and individuals for centralised reporting. Back-office services and tax reporting are also often provided.

Strategic players such as Colonial First State, Macquarie Group and AMP were viewed as the best placed to buy the Westpac platforms unit, as they can extract more synergies from the purchase over a private equity suitor.

Colonial, owned by private equity group KKR and Commonwealth Bank, lodged an indicative offer for Westpac’s platform business, as did AMP, this column understands. Macquarie is said to have fallen away from the sale process while Insignia Financial – formerly IOOF – sidestepped the auction.

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Macquarie surprise

It’s still too early in Macquarie’s financial year – it has a March 31 balance date – and there are too many moving pieces, to get a clear reading on how the group’s 2023 will pan out. The first-quarter trading update was certainly better than the market expected.

Those analysing Macquarie closely need to remember a few chunky asset sales or another supply shock in energy markets can swing its profit results, sometimes by hundreds of millions of dollars. Also, Macquarie generally takes a cautious stance on its guidance early in its financial year, and has tended in strong years to upgrade its expectations later in the period.

Macquarie’s latest short-term outlook did caution of fewer “notable realisations”, or asset sales out of the capital division for 2023, but that situation can fast change if market conditions or demand dynamics from potential buyers improve.

The other factor at play for the company is that Macquarie is cashed up.

The group’s capital surplus stood at $10.1bn at the end of June, boosted by a capital raising late last year. The asset management division had $28.8bn of equity to deploy at June 30, more than ample dry powder to pursue deals aggressively.

Just this month, the unlisted Macquarie Infrastructure Partners V fund struck a transaction to invest in Corredor Logística e Infraestrutura S.A, a Brazilian port terminal operator. And closer to home, Macquarie was part of a consortium including Aware Super and Australian Retirement Trust that entered into a joint venture with the Victorian government to operate the state’s registration, licencing, and custom plates businesses. That’s a 40-year agreement.

Interestingly, as it has been caught in the global war for talent Macquarie, has also signalled changes to its pay structure. The group was early to recognise the importance of deferring pay over longer periods to encourage a long-term mindset, retention and claw back of pay if required.

The timing of Macquarie’s latest remuneration review was linked to a new regulatory standard, and the major change for key executives is to shorten the vesting period of granted shares at the firm by two years. The amounts retained under Macquarie’s profit share structure have also been trimmed.

The move remains in keeping with the banking regulator’s guidance for a minimum deferral period for a chief executive of six years and for senior executives of five years. There are also stipulations around the proportion of variable pay subject to a deferral period.