Commonwealth Bank of Australia’s (CBA) bid for Count Financial is an opportunistic move made by chief executive designate Ian Narev at the bottom of the cycle which is light on premium, analysts say.
One day after the first tranche of draft legislation for the Future of Financial Advice (FOFA) reforms were announced, CBA made an unsolicited cash bid of $373 million for Australia’s biggest independent financial planning dealer group.
The bank on Tuesday offered shareholders $1.40 per share either in cash or the equivalent number of CBA shares, which is cheap, says Michael McCarthy, chief market strategist at CMC Markets.
It represents a “very undemanding” multiple of seven times earnings but strategically the deal makes perfect sense, he says.
Count’s shares closed at $1.41, after spiking 33.96 per cent to $1.42 on Tuesday.
Although the offer represents a 52 per cent premium to Count’s adjusted closing share price on Monday, shareholders will not gain any premium for the bank taking control of Count, says Morningstar analyst David Walker.
“This deal is a smart move by CBA at the bottom of the cycle,” he told clients on Wednesday.
“It is paying a nil premium for the country’s largest independent dealer group and a distribution channel – accounting firms – not available on the same scale anywhere else.”
Directors’ desire for “value certainty” ahead of the FOFA reforms meant they had foregone a premium for control, he added.
However, Bell Potter Securities banking analyst TS Lim asserts the premium paid is “solid” and will help CBA build scale and achieve cost synergies just as higher costs from the FOFA reforms loom.
“By leaving alone the Count brand and the offering, CBA is doing exactly what they did with Aussie Home Loans,” he said.
The Aussie Home Loans deal and the bank’s acquisition of BankWest was led by Mr Narev when he was CBA’s head of strategy.
Mr Narev will step into CBA’s top post on December 1 after chief executive Ralph Norris retires.
The bank’s promise to keep Count as a stand-alone unit, as well as regulatory uncertainty over the FOFA reforms, were key considerations in moving to sell Count, founder and executive chairman Barry Lambert said after unveiling the deal on Tuesday.
“The implications of the FOFA reforms have ended the level playing field for mid-sized firms and non-aligned advisory networks like Count.”
Count licenses financial planning products, systems and software to franchisees which are accounting firms wanting to expand into financial planning.
Its 630 financial advisers will take CBA’s adviser numbers to 1,850, making the bank’s dealer group second only in size to AMP’s.
Morningstar downgraded Count’s stock to Hold.
