Zenith Investment Partners will pay $12 million for the research and consultancy business, Chant West, which is owned by Chant West Holdings Ltd (CWL), an ASX-listed company. Warren Chant was the first person to phone David Wright, Zenith’s chief executive, to congratulate him on the purchase.
News of the deal, orchestrated by Brendan Burwood, the managing director of CWL, seems to have been well received by all interested parties. That’s a rare occurrence. The deal has an elegance and symmetry about it. Zenith will now be able to expand its wholesale presence into the institutional part of the market, mirroring the previous expansion of institutional competitor Super Ratings into the wholesale market with its purchase of Lonsec.
The other big player in the research and ratings space, Morningstar, is a bit different. It is the only one that provides third-party funds unit-pricing data and the only one which runs its own managed funds, which total about $5 billion. It is also the only one of the majors in Australia which is foreign owned, although Australians figure prominently among its senior management. They include, for instance, Sydney-born Daniel Needham, Morningstar’s Chicago-based CIO and president.
Both the institutional and wholesale parts of the industry have been going through tough times in the past few years and further consolidation has been inevitable. On the institutional side there has been a strong trend to mergers among big super funds, helped along by controversial and, perhaps, questionable pressure from the regulator, APRA. There has also been continued fee compression and the loss of many small-balance members due to legislative change.
On the wholesale side there has been structural change following the Royal Commission into financial services, which has had the fallout of many institutionally owned financial planning groups moving into a more independent environment.
David Wright said: “We’re very pleased to welcome the Chant West team and client capabilities into the Zenith business. This is a logical fit for our growth plans to better serve an expanded client base with unbiased research, consultancy and online tools, especially at a time when the broader super, pension and advice markets are undergoing considerable change and further evolving how they serve their clients and members.”
Brendan Burwood endorsed the transaction on behalf of his board. He said: “Chant West has been serving super and pension funds, employers and financial advisers for over two decades with unbiased research, member-focused consultancy services and user-friendly tools, all aimed at supporting the personal wealth goals of a growing number of Australians. In this regard, we believe that the Chant West research and consultancy business is very well aligned with Zenith’s corporate values and ambitions.”
Warren Chant said: “At a personal level, this transaction will bring to an end a very unhappy and disappointing four-year period since we sold our business to Enzumo in 2015. From a business perspective, it’s pleasing to see Zenith has plans to grow the business. That’s great for staff and clients. From a shareholder’s perspective, it’s great to see them get a good return on the 2017 rights issue price of 6 cents per share. But, of course, it’s a long way short of the 28 cents share price in late 2015”
Chant West was established by Warren Chant and Andrea West in 1997.. They sold their company, which was a very influential information provider to big super funds – both commercial and not-for-profits – into the listed entity Enzumo, now known as CWL, in 2017. Warren and Andrea still own 12 per cent of CWL.Enzumo’s business mainly involved configuring and customising XPLAN software for financial planners. Enzumo listed in 2015 with a plan to expand its business to providing financial planning software for the advice industry. The software development side of the business was a problem and Chant West’s revenue had to prop it up until very recently. The software project was discontinued in June 2017.
Brendan Burwood’s next challenge is to sell the remaining Enzumo business and either liquidate or sell the listed corporate shell. When he does that, he should feel satisfied.
David Wright of Zenith said in a prepared statement: “We’re very pleased to welcome the Chant West team and client capabilities into the Zenith business. This is a logical fit for our growth plans to better serve an expanded client base with unbiased research, consultancy and online tools, especially at a time when the broader super, pension and advice markets are undergoing considerable change and further evolving how they serve their clients and members.”
Brendan Burwood endorsed the transaction on behalf of the CWL Board, adding, “Chant West has been serving super and pension funds, employers and financial advisers for over 2 decades with unbiased research, member-focused consultancy services and user-friendly tools, all aimed at supporting the personal wealth goals of a growing number of Australians. In this regard, we believe that the Chant West research and consultancy business is very well aligned with Zenith’s corporate values and ambitions.” In a strange coincidence, Wright and Burwood attended university together in Geelong.
One of the interesting and currently unanswerable questions resulting from the deal is what happens with the annual funds management and super funds awards evenings of both Zenith and Chant West. Zenith has produced its own annual awards event, for funds managers, for the past two years but previously had an outsourced arrangement with Conexus Financial. Similarly, Chant West had an ultimately unsatisfactory arrangement with Conexus Financial, that company deciding to produce its own annual awards until last year, when it announced it was getting back into bed with Chant West. Wright said last week that his firm would be looking at those aspects of the merged business in due course.
From a business perspective this is important. Awards nights by themselves don’t make much, or any, money. The money is in what you do afterwards. Media and conference companies, such as Conexus, try to sell advertisements to the winners. In Chant West’s case, the firm charges winners to use their award logos – known as ‘apples’. This is also the business model of Morningstar, but not of Zenith. David Wright said his firm would also be studying the best way forward with that situation.
– G.B.
