The companies have entered into a bid implementation agreement under which Praemium will acquire all the ordinary full-paid shares in PowerWrap which it does not already hold.
The merger is expected to create one of Australia’s largest independent specialist platform providers with combined funds under administration value of over $27 billion across Australia, Asia and the United Kingdom.
Praemium is currently Powerwrap’s largest shareholder with 15.1% equity and has confirmed it will fund the purchase of the remaining 85% through a $15 million term loan facility.
The offer values Powerwrap at an indicative price of 26.44 cents per share, and an implied value of $55.6 million for all its issued share capital.
The indicative price represents a 51.1% premium on the last closing price of Powerwrap shares; an 82.3% premium on the three-month volume weighted average price of $0.145; and a 138.4% premium on the six-month VWAP of $0.111.
Under the terms of the offer, each Powerwrap shareholder will receive 7.5 cents per share in cash and one Praemium share for every two Powerwrap shares held.
Second time around
This is not the first time Praemium has been interested in acquiring Powerwrap.
Back in 2017, the company was one of three to make a move on the business in a trade sale process but the sale never reached a close and Powerwrap decided to list on the ASX instead.
Praemium chairman Barry Lewin said today’s proposed transaction is an “exciting opportunity” for shareholders in both companies.
“For many years, [we have] been on a growth trajectory with a recent history of generating growing profitability,” he said.
“This merger adds increased scale and significant synergies – Powerwrap shareholders can gain exposure to [our] strong financial position and advanced technology, to realise compelling benefits through this merger.”
Mr Lewin said the likelihood of a competing takeover offer emerging for Powerwrap was low considering Praemium’s current level of equity.
Powerwrap’s board of directors have encouraged shareholders to accept the offer and “take the next step in the company’s journey”.
High net worth market
Powerwrap is focused on the high net worth (HNW) market segment and comprises over $2 trillion in assets across 460,000 investors with an average account size of $1.9 million.
The platform specialises in sophisticated investment solutions and has access to over 250 domestic and international over-the-counter bonds.
It is believed to have the market’s largest investment product menu with a funds under administration value of $7.9 billion.
The merged group will be the only adviser platform which operates in Australia, the UK and a number of offshore markets.
It is expected to have greater financial and operational scale and be well positioned to pursue ambitious growth opportunities.
Praemium quoted a proforma combined revenue of $65.8 million for the 2019 calendar year, with an expectation that full earnings before interest tax depreciation and amortisation (EBITDA) operating cost synergies for the new entity to total $6 million by financial year 2022.
“Combining the resources and capabilities of Praemium and Powerwrap will create a business with greater scale, international reach, improved inflows and liquidity, and a more flexible balance sheet,” Mr Lewin said.
“We will be in a strong position to serve the complex needs of advisers with HNW clients; be a strong market leader in accurate and reliable reporting for HIN (holder identification number) portfolios.”