Australia's fastest-growing wealth management platform Netwealth (ASX: NWL) has proposed a scrip-based takeover offer to Praemium (ASX: PPL) at a 29 per cent premium, but the target's board unanimously believes the bid undervalues its momentum and superior technology.
At yesterday's closing prices, the offer of one NWL share for every 11.96 PPL shares would value the takeover target at $785 million, and create the country's largest independent wealth management platform with net flows of $16 billion in the year to 30 September.
The combined group would account for $72 billion worth of Australian platform funds under management (FUM) and more than $22 billion non-custodial assets.
"Netwealth is confident that the proposed transaction (if implemented) would create a very strong value proposition for existing and future clients and for shareholders of both groups," says Netwealth joint managing director Matt Heine.
"The proposed transaction would ensure that the combined group can continue to lead the industry in net funds flow, technology and client service in what is currently a competitive and rapidly changing platform and advice landscape.
"Praemium would have meaningful equity in the combined group and benefit alongside Netwealth shareholders from the strategic benefits as well as the cost and revenue synergies that would arise from the merger."
The offer at a 55x EBITDA multiple is not compelling enough for the Praemium board however, which noted it does not "appropriately value Praemium’s current performance and near-term trajectory" and fails to reflect a "significant valuation upside available to shareholders, given Praemium is valued at a discount to industry peers Hub24 and Netwealth based on EV/revenue or EV/FUA multiples".
"As a strong, rapidly growing independent player in the platform and funds administration industry, Praemium is in a unique position," Praemium stated in the release.
"The Board is open to engagement at an appropriate valuation but is mindful that any proposals put forward should appropriately reflect Praemium’s market position and growth potential as well as recent activity in the sector."
PPS shares were up 16.57 per cent at the time of writing at $1.45 each, while NWL shares were down slightly by 0.8 per cent at $17.37 each. Based on these prices, the combined market capitalisation of both companies would currently be worth $5.14 billion.
Netwealth was one of the fastest risers in this year's Melbourne Top Companies list, rising 11 spots to 32nd place. Meanwhile, prior to the takeover announcements in Praemium shares had almost doubled year-over-year.
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