One of Perpetual’s largest institutional shareholders, Spheria Asset Management, has publicly stated that the recent $2.5 billion private equity bid for the financial conglomerate was significantly undervalued. Spheria, which holds approximately 3 per cent of Perpetual’s shares, supported the board’s decision last week to reject the $21.64 per share offer from an entity linked to Swedish private equity firm EQT. Perpetual is a diversified financial conglomerate offering services including asset management and corporate trust, managing over $220 billion of client funds.
Matt Booker, Spheria’s portfolio manager, conveyed to Perpetual’s board that the shares were worth more than the indicative bid. He argued that applying a 20 times earnings multiple to Perpetual’s highly regarded corporate trust business alone would value it at about $2 billion, suggesting the asset management division would be acquired for a mere 2.5 times earnings before tax. Spheria, which is partly owned by Pinnacle Investment Management, has built its position in Perpetual over the past 18 months, believing the market has effectively ascribed a negative valuation to the asset management unit.
Perpetual shares recently traded at $19.29, reflecting an almost 11 per cent discount to the rejected $21.64 bid price, which the board deemed did not adequately represent fair value. This latest offer follows prior attempts by EQT to acquire Perpetual assets, including a 2022 bid for the corporate trust business. The subsequent merger with Pendal increased Perpetual’s exposure to challenges within the active funds management industry as clients shifted towards lower-cost passive options.
Booker, however, believes that the active management industry is simply in a cycle and will return to favour, citing significant valuation inefficiencies created by overcrowding in passive investments. He stressed that a sale is not imperative for Perpetual, highlighting the company’s solid cash flow generation, strong balance sheet, and healthy dividend prospects. Furthermore, Perpetual has already agreed to sell its wealth management unit to Bain Capital for $550 million, while other shareholders, like Kingfisher Capital Partners, advocate for a split of the remaining corporate trust and asset management businesses to unlock further value.
