Managed Accounts Holdings will merge with Linear Financial Holdings and the combined entity is already flagging the delivery of a managed accounts solution to Shaw and Partners clients.
MGP submitted a non-binding conditional proposal to purchase 100% of shares in Linear for an enterprise value of $42.5 million. It received unanimous support from the Linear board, and Linear executive chairman Colin Peterson said the potential upside of the merger was attractive.
Described by MGP as 'transformative', the acquisition will create an entity with significant scale and an extensive suite of products for financial advisers, stockbrokers, investment managers and the institutional market.
Combined, Linear and MGP administer more than $11 billion in funds - about $4 billion of which sits in managed accounts - and will derive revenue of about $14.7 million.
According to MGP the merged entity will be well positioned to attract new business, with pre-tax synergies post-FY18 expected to reach $3.5 million, though Linear is forecasting a modest profit on a standalone basis for the current financial year.
Commenting on the merger, MGP executive chairman Don Sharp said: "Linear has been a leading provider of platform solutions in the Australian market for some time now. The merger is in line with our strategy to focus on merger and acquisition opportunities that are complementary and leverage both parties' key services and capabilities."
"We believe bringing together these two businesses will provide existing and future clients with an enhanced platform and administration services."
The merger proposal places an enterprise value of $42.5 million on Linear with consideration for Linear shareholders to include up to $8 million cash and a minimum of $14 million of MGP scrip to be issued at $0.33 per MGP share. The cash consideration is to be funded via capital raising.
Positive dynamics in the non-conflicted advice market, the stockbroking market as it transitions to annuity revenue streams and the increasing appetite for the institutional market to outsource administration and technology were cited as drivers behind the merger.
The agreement is subject to a number of conditions but is expected to be finalised in late-November.
MGP also announced it has entered into a Memorandum of Understanding with Shaw and Partners to explore the possibility of the merged entity delivering a platform solution to the $2.5 billion firm.
Prior to the announcement, MGP responded to investor queries around the implementation process of a managed discretionary account and superannuation service for licensees, outlining the various associated requirements.
MGP said that following the initial execution of a Memorandum of Understanding, it completes due diligence to understand the licensee's requirements and commences building and implementation of the necessary documentation, infrastructure and related arrangements that enable the service to be made available to advisers to advise on. For this, MGP earns an implementation fee.
Service agreement and investment management agreements do not contain any commitment by the licensee to transfer any specific proportion or amount of its funds under advice to the new service, though may contain minimum fees incurred by the licensee if minimum commercial levels of funds under administration are not reached.
"Therefore, upon entry into formal agreements, it is not possible to determine the potential increase in MGP's funds under administration arising for a new MDA or superannuation service," the ASX statement read.
Upon completion of the process MGP earns administration fees on the FUA and transaction fees.
The clarification and announcement regarding Shaw and Partners comes off the back of MGP's 2017 annual results which saw lower than expected growth in the number of licensees to which it provides managed accounts services.