Managed Accounts Holdings (ASX:MGP) talks Linear merger


by Jessica Amir

Managed Accounts Holdings (ASX:MGP) CEO David Heather talks about the acquisition of Linear Financial Holdings, record inflows and what the merger means for clients.

Jessica Amir: Hi, I'm Jessica Amir, for the Finance News Network, with Managed Accounts Holding CEO, David Heather. Hi, David, welcome back.

David Heather: Hi, Jessica, how are you?

Jessica Amir: Good, thanks. First off, for investors new to the company, just give us a quick introduction.

David Heather: Managed Accounts Holdings is a specialist administration provider to the intermediary sector, and we're really talking about that sector comprising stockbrokers, financial advisory firms, wealth managers, and investment managers. We focus, not just on general administration, but investment administration, and we built a specialization in providing managed account solutions, which is a growing part of the market, but equally, also provide rep solutions, and really, any investment administration solution that part of the market needs.

We're very proud to say, after the merger with Linear, that we now administer about $12.3 billion. We're in a part of the market that has got increasing demand, because advisory firms are, in the main, are looking to actually create better solutions for their clients, which is a great thing to see.

Jessica Amir: And David, just on the Linear merger, just tell us about the rationale behind it.

David Heather: Yeah, I think there's three key strategic rationale points. The first point is just scale. As of 31 December, 2017, the combined entity was administering about $12.3 billion, so that really is a sizable business, and I think most firms that are looking for a solution, in this space, look for a provider that's got some scale, and the benefits that come from that scale.

The second thing is, being, both of us are being in the same space, Linear and us, as are, Managed Accounts, pre-merger, probably competed in similar markets for a number of years. So, there's a lot of complementary products and services, but equally, we did things slightly differently. So that really provides a best of breed solution capability for the merged business, and I think that's exciting for clients.

The third thing is, clearly, when you bring two businesses together that are doing similar things, there's a potential for synergies, and I think, fair to say, through the merger process, we identified about $3.5 million in synergies, and that was prior to us actually trying to bring the two different administration platforms in, i.e., the technology, and the processes together. So, if we're able to do a little bit more, in terms of integration of the technology, then we might be able to actually see higher synergies.

Jessica Amir: David, what does it mean for clients?

David Heather: Look, there's two parts to the client response. First one, to the existing clients, we're going to have the capacity to introduce new solutions to the respective client bases, for each of the firms in the merger. Obviously, for new clients, looking to roll out best of breed solutions to those new clients, using our distribution resources, that we've been investing in, pre-merger. So, I think, great for the clients.

Jessica Amir: What's the financial impact for FY '19?

David Heather: If we achieve 25 per cent year-on-year increase in revenues, we're talking about our revenues in 2019 being about $23.5 million, and that leads to an EBITDA of about, $7.5 to $8.5 million, when you look at the two forecasts of the businesses, and then factor in synergies. That leads to an EBITDA of around 32 per cent to 36 per cent.

Jessica Amir: Turning to your December quarter results, just tell us about the pre-merger inflows.

David Heather: Flows for the quarter are $113.6 mil, which was a record quarter for us, which is very pleasing. We're starting to see the benefits of the investment we've made into the sales and distribution team.

Jessica Amir: What about the Linear inflows?

David Heather: Look, the Linear inflows, we're in for the full quarter, but for the six weeks, post the merger, to the end of December, they came in at about $74-odd million. We'll get the full quarter inflows in that next quarter, and then, it'd be interesting to see what that number is, at the end of March.

Jessica Amir: Looking forward, what's the scope for new clients?

David Heather: Well, Jessica, we signed four memorandum of understanding last quarter, which was positive, and certainly, we're going through the process of building solutions to meet the requirements of those four MOUs. In addition to that, we've had two MOUs that we'd signed in previous quarters, with large firms, one that's been a long-standing MOU, where we'd been working with the client to design the right solution for the client.

In addition to that, we've had a play to the market, and we'd signed an MOU with Shaw and Partners, around the merger announcement, and certainly, those discussions are a positive, as we speak. So, again, looking forward to seeing those discussions complete, and being able to roll out a solution for Shaw and Partners.

Jessica Amir: Now, to the structural shifts that the industry's seeing. Just tell us how it's going to play out for the firm.

David Heather: We're certainly seeing a shift, from an adviser point of view, moving away from banks and bank-owned advisory firms, out to firms that are more independent, or self-licensed. I think that's what's seeing is a movement of, also away, from bank-owned platforms, into the more independent platforms that are in the market. A lot of that's being driven by a desire to have a more flexible free product list, and really, give the client a better solution.

One of the things we want to do this year is roll out is a wrap platform, and we've certainly flagged to the market that we're looking to do that in the middle of the year. The other we've got is, the whole managed account concept is now a more a mainstream concept, which is fantastic, because the clients get a better outcome than what they might have had previously. So, I think, on both fronts, whether it, providing wrap solutions, or a managed account solution, the merged entity's in a good place, in terms of future flows that might come.

Jessica Amir: Lastly, David, what are the key things that we can look out for, over the next six months?

David Heather: From our perspective, certainly, we've got a merger, a process we're going through, in terms of integration, and there's a lot of positive things that are coming out that process. Using better technology for our client bases, new products and services, which is embracing that best of breed approach. Certainly, we've engaged with some really quality people of more recent times joining the firm. Tony Nejasmic joined us last year to head up sales and distribution. Richard Carr has joined us, at more recent times, to grow our stockbroking segment. So I'm certainly looking forward to some positive news in that sales area, in particular, stock of the stockbroking segment, we're certainly going to be happy to just share all that news with the market, as we go forward in the coming months.

Jessica Amir: Very exciting. David Heather, congratulations on the merger, and thank you so much for the update.

David Heather: Thanks, Jessica.


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