Ann: IOOF to acquire Bendigo Financial Planning Book, page-2

Quite small, in the scheme of things, but I think this acquisition indicates something more significant that is modest size, namely just how keenly motivated sellers of wealth management businesses are currently, and are likely to continue to be for some time... and are therefore not overly discriminate about the price they want for the businesses they are selling.

Which, for a company like IOOF - for which wealth management is a core business activity, and which would therefore like to buy more wealth management assets from others for which wealth management is non-core - this is a good thing.

For context, IOOF in FY2018 generated a little over $900m in Revenue, off ~$150bn of FUMAS, so a fee rate of ~60bp. On that basis, the $1.0bn of FUA that IOOF just acquired from Bendigo should generate some $6m in incremental Revenue for IOOF... for which IOOF is paying somewhere between $3m and $6m ($3m upfront, plus an undisclosed 12-month deferred payment ... which I assume could be up to a similar amount).

So, effectively a Price-to-Revenue of less than 1.0x or, based on the company's Cost-to-Income ratio of around 55%, it implies a Price to Pre-Tax Earnings of around 2.2x P/E (or around 3.2x on After-Tax basis).

So, sure, this is not a material transaction, but I think it has some significance to the extent that it is an indicator of potential future transactions which, it stands to reason, are likely to be favourable for IOOF given industry circumstances, particularly in the aftermath of the tumultuous events of 2018.

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