In a statement to the market on Wednesday, HUB24 announced it would sell advice group Paragem to Easton Investments, the owner of dealer groups Merit Wealth and GPS Wealth, in exchange for $4 million worth of shares in the listed wealth group.
The transaction plus the purchase of an additional $14 million of Easton shares would see HUB24 take a 40 per cent stake in the business, HUB24 said.
In addition, HUB24 said it would acquire managed accounts platform Xplore at an effective share price of 20 cents a share, which it said represented a premium of 203 per cent to the closing share price of Xplore shares on 27 October.
The total purchase price for Xplore was $60 million by way of a scheme of arrangement via a combination of cash and HUB24 scrip consideration, HUB24 said.
HUB24 also said it would acquire Ord Minnett’s non-custody portfolio administration and reporting service (PARS) for $10.5 million upfront cash consideration.
HUB24 said the transactions would “strengthen and further consolidate HUB24’s position as a leading specialist platform provider and technology services business”.
Meanwhile, the investment in Easton would “position HUB24 as a significant shareholder in a leading service provider to financial advisers and licensees” and secure an anchor client for HUB24’s technology services.
“The successful completion of these transactions, which include the acquisition of Xplore Wealth and Ord Minnett’s PARS, will result in a 47 per cent increase in custodial FUA, around 400 new adviser relationships and the expansion of non-custody administration FUA to $14 billion,” HUB24 chief executive Andrew Alcock said.
“In addition, through the divestment and merger of Paragem and our investment in Easton Investments we anticipate holding approximately 40 per cent shareholding in Easton, which is a diversified financial services business servicing 174 financial advisers and over 510 licensed accountants. Easton’s provision of licensee, training and educational services will provide a cornerstone for HUB24’s vision to enable the advice businesses of the future.”
I hope the advisers at GPS and Merit like Hub24. They’ll soon get used to using it.
So as a result, Paragem, Merit, & GPS licensees will all be controlled by financial product company HUB24. This isn’t really a sale of Paragem at all. It’s an acquisition of two extra dealer groups by HUB24. It’s also an acquisition of additional products by HUB24 to sell through those dealer groups.
I thought the industry was (mostly) getting away from this sort of thing? Not a good look for HUB24 or the licensees involved. IOOF is becoming an AMP replica, and it looks like HUB24 is also heading in the same direction.
Mate not really at all. Its a 40 percent stake in a publicly listed diversified financial, they don’t control the afsl or apl.
Is this an example of vertical integration which we think was the origination of all sorts of problem?
Yep – plenty of questions around this one, esp. around conflicts.
They will have their hands full trying deliver on the promises of the non-custodial work – both on the Explore Book and Ord’s. This is very low margin, very manual, and high risk administration and is not a core competency of HUB’s which to date has been very much a custodial based business. This type of BPO work requires highly specialised systems and personnel to run them accurately and efficiently – this is no river of gold I can assure you.
For reference Linear raised the white flag and sold themselves to Explore some time back and it has gone from bad to worse with a mix mash of technologies over-laid with enormous amounts of maual work-arounds and a shocking culture. Many advisers having left Explore refer to it as “Explode” – there is no wonder the Major S/H’s took such a low ball valuation.
There are also many outlier questions regarding how HUB will manage the Explore systems as their offering is quite different from HUB’score offering and its core systems are not proprietary and have significant technical debt and operational overhead to address.