Final Insignia acquisition attempt could go either way: Morningstar

According to Morningstar analyst Shaun Ler, there is now an “equal probability” that the remaining Insignia takeover bid would succeed or fail, while also knocking down the “fair value” estimate of the firm’s share price.

Last week, Insignia Financial announced that Bain Capital had withdrawn from the acquisition process.

The US private equity firm had been the first bidder to put in an offer for Insignia in December last year, originally pricing the takeover at $4 per share.

Insignia rejected the acquisition attempt, stating it “does not adequately represent fair value” for shareholders, with Bain subsequently making three bids of $4.30, $4.60 and $5 per share.

However, it has now opted to exit the process after a 10-week due diligence period.

In an ASX statement, Insignia said: “Bain has informed Insignia Financial that it will be unable to proceed at this time with making a binding offer for the company, due to the macro uncertainty caused by the volatility in global capital markets.

“Insignia Financial remains in discussions with CC Capital, which has advised that it continues to actively work towards making a binding bid for the company over the coming weeks.

“There is no certainty that the ongoing discussions will result in any transaction being put to Insignia Financial shareholders for their consideration.”

However, as rival bidder CC Capital remains in play, Ler believes it is “still too early” to write off the acquisition process.

“We believe it’s too early to conclude that CC Capital will also withdraw, though the risk has increased. Market volatility – cited by Bain – has moderated in recent weeks. Constructive talks between the US and China to roll back tariffs have improved investor sentiment.

“While we can’t rule it out, we think it’s less likely that Bain exited due to it identifying a fatal flaw in Insignia. We see the firm’s fundamentals improving, with better profitability from cost reductions, moderating net outflows and compounding of client flows.”

As a result, Morningstar has lowered Insignia’s fair value estimate from $5.00 in April to $4.45 and said the firm should see slower fee compression, steadier fund flows, and scalable cost reductions going forward.

Shares in the firm are down by 4.2 per cent since the start of 2025 and fell by 6 per cent on the day of the exit of Bain Capital.

Regarding the next possible action from CC Capital, which has also made a bid priced at $5 per share, Morningstar forecast it could possibly revise the bid lower now there is a lack of competing bidders or proceed at the current price as Insignia’s fundamentals remain solid.

There is a potential CC could also withdraw but this would likely be triggered only if equity markets or Insignia’s fund flows deteriorate significantly.

“Insignia says CC Capital is working towards a binding bid in the coming week, suggesting they are still engaged. The $5 per share big price is an attractive price for shareholders. It realises value sooner and avoids the operational challenges Insignia faces to improve.”

The research house also noted that the volatility caused by US President Donald Trump’s tariffs, as referenced by Bain Capital, presented a tough backdrop widely for asset management firms. As well as Insignia, it was also likely to affect Magellan, Platinum, GQG and Perpetual.

“The earnings impact from tariff uncertainties should be bearable this fiscal year but fully felt in fiscal 2026. As rate cuts are priced in and volatility rises, we expect business wins to slow down, with fee compression and growth investments restraining earnings growth,” Ler said.

“On average, our covered firms are likely to suffer a gradual medium-term earnings decline. This is due to fading cyclical tailwinds from rate cuts and rising volatility under the new US administration, likely suppressing flows.”