In a somewhat surprising move, portfolio manager HUB24 Ltd [ASX:HUB] is on the move today. Launching a barrage of bids on three acquisitions targets.
Those targets are:
- Xplore Wealth Ltd [ASX:XPL]
- Ord Minnett’s portfolio administration and reporting service division
- A 40% stake in Easton Investments Ltd [ASX:EAS]
All up, HUB24 will spend roughly $93 million to get these deals done. With the $60 million takeover of Xplore being the crown jewel.
But with HUB24 shares in a trading halt, we have no way to know what the market is making of the news. However, if Easton Investments’ trading performance is anything to go by (up 26% at time of writing), then there is plenty of interest.
Big-time consolidation
It is pretty damn clear as to why HUB24 has decided to strike today.
Because as they note in their trading update, they’re looking to bolster their dominance:
‘Once implemented, these transactions will strengthen and further consolidate HUB24’s position as a leading specialist platform provider and technology services business while building scale in platform funds under administrations (“FUA”).
‘FUA across the combined group is expected to increase to $42 billion ($28 billion in custody, and $14 billion in non-custody) and introduce additional capability to HUB24’s market leading platform. Existing and potential clients are expected to benefit from a number of highly attractive differentiators once full integration is complete.’
In other words, these deals will add more capital and more diversity. Allowing HUB24 to flex its portfolio muscle and showcase new ways to manage customers’ money.
More than that though, it is stopping the competition before they get out of their reach. Choosing to absorb them under one roof, rather than go head-to-head with them.
This is perhaps best exemplified by the 203% premium that HUB24 is offering for Xplore. Funded via a mix of cash and scrip.
In fact, in order to fund all these deals, HUB24 declared a fresh capital raise as well. Aiming to top up their cash balance by $60 million in order to help get these acquisitions done. A sizeable sum, but one that this $1.32 billion company should have no trouble collecting.
The ultimate question though, is whether shareholders will feel like they’re getting a good deal or not. Because as bold as these deals are, they aren’t exactly huge takeover targets.
What’s next for HUB24 and the market?
Once HUB24 comes out of its trading halt, it will be interesting to see how shareholders react.
On the one hand it is hard to ignore the new opportunities these deals will offer. Potentially giving HUB24 the ability to diversify their offering and customer base more broadly.
But they are paying a somewhat hefty price for it too. Something that may turn off some shareholders.
Not to mention the dilution from the capital raising as well.
In this regard we could see HUB24’s shares rise or fall. All depending how the market sentiment sways at the time.
One thing is for sure though, it is likely to light a fire under the investment platform sector. Perhaps leading to even more, and maybe bigger consolidation in the future.
We will simply have to wait and see.
Regards,
Ryan Clarkson-Ledward,
For Money Morning
PS: HUB24 certainly isn’t the only company in the financial space making headway lately. The bustling fintech sector is surging once more, especially in small-caps. That’s why we’ve put together a report on three of our favourites. Check it out, for free, right here.
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