BT Financial Group is being palmed off yet again in what will be Australian bank Westpac’s second attempt to acquire the investment firm. It will also be the bank’s third, and largest, fund management acquisition since it purchased Rothschild Australia Asset Management in April.
Westpac will acquire a majority stake in BT Financial Group for A$900 million (US$496 million) with a maximum additional payment of A$150 million to Principal Finance Group subject to the performance of the business – that is, dependent on Westpac’s success in increasing retail funds under management.
On August 19, a week after the announcement that it would buy BT, Westpac stated that it would also acquire a 51% stake in alternative asset management firm Hastings Fund Management for $36 million.
This is not the first time Westpac has attempted to purchase BT Financial Group. In 1999 it was the preferred bidder when Deutsche Bank divested the business but was forced to withdraw its offer when BT employees rallied against it.
Principal Financial Group was the successful acquirer of BT for A$2.1 billion. However, less than three years on Principal has chewed the business up and spat it out. One banker says: “BT is a damaged franchise. It has a poor investment track record and has had significant cash outflows.”
Kirk West, managing director at Principal Capital Management, says: “There was a period when we saw some fund outflow due to performance issues but that has been rectified.” He says Principal decided to sell BT due to “changing market dynamics in Australia over the period”. That is, the company felt BT’s customers would be better served under Westpac’s ownership due to the rapid market consolidation of fund management with Australian banks. “BT was going to be a more valuable asset within a large local player with distribution than a foreign player without,” he adds.
BT’s poor performance means that Westpac can acquire it for half of what Principal paid. Nonetheless analysts are not convinced it is a good price. Ross Brown, bank analyst at Deutsche Bank in Australia, says: “BT’s A$900 million price tag looks reasonable based on a percentage of funds under management, although expensive on an earnings measure.”
Westpac’s acquisition of Rothschild’s local fund management unit in April for A$323 million added A$2.7 billion to Westpac’s retail assets under management. This took the bank from seventh to fifth largest in terms of retail funds under management behind Commonwealth Bank of Australia, National Australia Bank, AMP and ANZ.
BT Financial Group is Westpac’s biggest leap in retail fund management, adding A$10.9 billion in assets, bringing it to $28.1 billion. This puts it fourth, close behind AMP, which has A$28.6 billion.
