ASX-listed Generation Development Group is set to pay about $20.1 million to buy a 37% strategic stake in investment research and ratings house Lonsec Holdings Pty Ltd.
Generation will raise up to $35 million via an institutional placement and accelerated non-renounceable entitlement offer.
Of this $35 million, $20.1 million will go towards the Lonsec stake, up to $10 million will be spent on developing a new annuity product ($5 million regulatory capital and $5 million in development costs), and about $5 million will be kept for general working capital and transaction costs.
The Lonsec transaction is expected to complete in mid-October, and will expand GDG's addressable market and diversify its revenue streams, GDG said.
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GDG will pay a total of up to $26 million plus for the Lonsec stake, including the upfront cash of $20.6 million and up to $6.6 million ($3.3 million is the company's base case) deferred scrip consideration to be issued at offer price of 70 cents and contingent on Lonsec's FY21 EBITDA performance.
"Lonsec is well known and respected in the financial services sector, with its clients comprising a significant proportion of Australia's leading fund managers, superannuation funds, advisory groups and wealth platforms. This investment in Lonsec will provide GDG with a highly strategic foothold in an attractive market niche of the financial services and wealth management market," GDG chair Rob Coombe said.
"We believe that Lonsec is well positioned for future growth supported by strong industry and regulatory tailwinds and will provide access to resilient recurring revenue streams from its core research offering. The Lonsec investment is expected to be immediately accretive to our earnings," he said.
The annuity GDG flagged today seeks to address longevity risk, which has been a focus of the ongoing plan to introduce the Comprehensive Income Products for Retirement regime.
The equity raise is being handled by Moelis Australia and Morgans as joint lead managers and underwriters. About 50 million new GDG shares will be issued at 70 cents a share, which is 16.7% discount to yesterday's close.
Lonsec selling a stake follows Zenith last year selling a stake to a private equity group, and Chant West this year selling its superannuation research business to Zenith.