Perpetual to be a ‘leaner asset play’ after $2.2b sale of key divisions to KKR

The formal proposal announced today follows confirmation by Perpetual on 29 April that it had entered into exclusive talks with KKR for the acquisition of its Corporate Trust and Wealth Management businesses.

However, the market was unimpressed with the deal, marking Perpetual shares down by 7 per cent to $22.32 at the close - with analysts concerned there was not enough detail in the announcement.

Shareholders have been told the cash proceeds from the deal will be revealed when the company announces its full-year earnings results in August.

The KKR buyout proposal has been heralded by Perpetual as the optimal outcome of a strategic review launched by the company in December to unlock value for shareholders and create a more focused asset management business.

The move was announced on the same day that Perpetual rejected a $3 billion takeover and demerger proposal from Washington H. Soul Pattinson and Company (ASX: SOL).

Perpetual says the sale to KKR represents an attractive valuation of 13.7 times the divisions’ EBITDA over the last 12 months and 16.3 times EBIT over the same period.

Following the sale, the company says shareholders will own shares in a leaner, debt-free Perpetual – a global asset management group with $227 billion in assets under management.

However, settlement of the deal will also see CEO Rob Adams retire, paving the way for Perpetual’s “next phase as a standalone asset management business”.

“Following a comprehensive review, which included shareholder feedback, the board has concluded that becoming a standalone asset management business, rather than remaining a complex diversified financial services conglomerate which is difficult for the market to value, will provide better long-term value for Perpetual shareholders,” says Perpetual chairman Tony D’Aloisio.

“Shareholders will benefit from cash proceeds following the separation and acquisition by KKR of our Wealth Management and Corporate Trust businesses, while also retaining ownership in a more streamlined and debt-free global Asset Management business.”

D’Aloisio says the sale of the businesses via a scheme of arrangement is the best way to deliver certainty, an attractive valuation and near-term returns for shareholders.

“KKR is highly reputable and has worked constructively with Perpetual management and our board to come to an outcome that we believe is compelling for our shareholders.”

Under the agreement, Perpetual will provide transitional services to KKR over 18 months after the deal is settled with options to extend this a further 12 months.

The company says that Wealth Management and Corporate Trust businesses will “continue to operate as standalone independent businesses, with continuity of management”. 

“This is a positive outcome for our shareholders, our clients and our people,” says outgoing CEO Rob Adams.

“Each business will now have the focus and capital required to continue to grow in their respective markets ensuring our clients continue to receive world-class advice and services.

“In the remaining Asset Management business, our shareholders will own a simpler, more streamlined, pure-play and independent global multi-boutique investment management business, with organic growth potential.

“The combination of Perpetual’s Australian Asset Management business and the acquisitions of Trillium, Barrow Hanley and Pendal, has created a high-quality global firm.

“As a standalone business, it will be leaner, more agile and fully focused on enabling our highly respected investment professionals to continue to deliver strong returns to clients, whilst presenting long-term growth opportunities for our shareholders.”

Adams says the deal paves the way for fresh leadership and a renewed focus on driving growth.

“Our Asset Management business has world-class portfolio managers, diverse capabilities and a global distribution reach,” he says.

“I am confident that this combination will deliver positive outcomes for our clients and shareholders over time, benefiting from the focus and balance sheet strength that will result from this transaction.” 

KKR Australia partner and co-head David Lang describes the business buyout proposal as a “transformational” transaction and that it reflects the Perpetual board’s “significant trust in KKR”.

“We have developed important relationships with the Wealth Management and the Corporate Trust management teams and will invest behind their strategic ambitions of being two independent standalone businesses,” says Lang.

“We look forward to supporting the continued success of the Wealth Management business and the Corporate Trust business to deliver long-term benefits for their respective clients.”

 The KKR buyout has been unanimously recommended by the Perpetual board, but it still needs shareholder and regulatory approval.

Shareholders are expected to vote on the scheme in January 2025 with settlement set to occur shortly afterwards if approved.