(Pictured: John McMurtrie)
by Greg Bright
The Link Group, owner of AAS, has confirmed it has progressed its proposal to purchase Superpartners, its main competitor in the super administration market, entering an exclusive heads of agreement. If the deal proceeds to consummation, then the hard work begins.
As predicted by Investor Strategy News (ISN July 13, 2014), Link has proved to be the only buyer as the five big industry funds which own Superpartners commissioned international corporate advisor Grant Thornton to run a sale process. Grant Thornton short-listed Link, IBM and a private equity firm. IBM had made a foray into the corporate super admin market in Australia previously, but withdrew after several years.
The funds – AustralianSuper, Cbus, HostPlus, HESTA and MTAA Super – also appointed Ernst & Young as accountants and Mills Oakley as legal advisors. They have agreed to migrate their own members to AAS as part of the proposal.
Assuming a deal is finalised, Link Group chief executive, John McMurtrie, will have the biggest challenge ahead in his 12-year stint at the helm of Link. He has been in the financial services industry for more than 30 years and is a former managing director of UBS Australia and chairman of Sydney Water.
Superpartners administers 6.3 million super accounts and AAS about 4.5 million. Australia has only 11 million workers, but there are more than 28 million super accounts. It is unknown whether Link has had formal consultations with the ACCC about the proposal, however, it is thought that the firm will have a strong argument to be allowed to take up almost a monopoly position in that part of the industry.
While not-for-profit funds account for about 75-80 per cent of members, and Superpartners and AAS combined account for more than 80 per cent of those, the not-for-profits account for only a little over one-third of the assets. Last year, for the first time, their aggregate membership declined due to account consolidation, aggressive marketing of low-cost MySuper products by the banks and AMP, and continued growth among SMSFs.
Furthermore, the future of Superpartners was parlous, due to a disastrous IT overhaul which has reportedly already cost the owners more than $300 million and which has still not delivered a satisfactory solution. Superpartners is believed to have been losing money for the past two years. The five funds were in a bind: if they didn’t sell Superpartners they would either have to invest a lot more money or build their own systems, which would also have been very costly.
But the biggest challenge for Link’s McMurtrie will be managing the transfer. One industry insider said that the transfer of data alone could cost as much as $100 million. The two administrators have different systems and most of Superpartners’ 2,000 employees, many of them unionised, are based in Melbourne, while most of AAS’s 1,200 are in Sydney. Who will pay for redundancies?
Link Group is controlled by Pacific Equity Partners (PEP), which has owned AAS since 2007 and built up an international share registry business, software development business and other enterprises alongside AAS in that time. It was thought that PEP would have liked to exit soon via an IPO but this will be difficult until it is known whether the proposed physical takeover is a success.