Insignia lost a suitor, but takeover isn't off the table: Morningstar

Bain Capital withdrew its bid for Insignia Financial, which saw the company's share price tumble, but with CC Capital still in the mix, the takeover saga isn't over yet, according to Morningstar.

Morningstar said that although the risk of a takeover unravelling has increased, the volatility Bain cited for bowing out has moderated in recent weeks.

The research house noted constructive US-China tariff negotiations have improved investor sentiment, and if that continues, capital markets could return to more benign conditions.

"While we can't rule it out, we think it's less likely Bain exited due to identifying a fatal flaw in Insignia. We see the firm's fundamentals improving, with better profitability from cost reductions, moderating new outflows, and the compounding of client funds," it said.

Morningstar, despite lowering its fair value estimate for "no-moat" Insignia, still sees an even chance of the deal succeeding or falling apart.

"CC Capital could proceed with its current terms in market volatility eases further and Insignia's fundaments remain solid, providing upside from the current share price," it said.

"On the downside, CC Capital could withdraw, particularly if the equity market takes a big leg down, or if Insignia's flows deteriorate significantly. With no competing bidders, CC Capital could revise its over lower, but we think that's possible rather than probable."

Morningstar also noted that Insignia said CC Capital is working hard toward a binding bid in the coming weeks, which suggests that they're still engaged.

It added that Insignia's reputation has been scarred by the Royal Commission, but the firm has "managed reputational risks better than its immediate peer AMP" thanks to its multi-brand offer.