Over the past decade, the fund administration industry has been rife with mergers and acquisitions (M&A). What started with banks dumping their units dedicated to providing back-office support to hedge funds and other alternatives asset managers, has now become predominantly a battle between technology-focused giants that look to offer an umbrella of services.
Vary rarely do we see these giants come up against each other publicly – more often than not, these deals are carried out with lawyers behind closed doors, setting out details around the transfer of staff and client assets.
What started in February when Vistra, a relatively small-sized fund administrator, announced a deal to buy Australian fund services provider Mainstream Group for $170 million, has now spiralled into a fierce bidding war pitting the two juggernauts of the fund admin M&A world SS&C Technologies and Apex Group against one another.
SS&C looked to steal Vistra’s offer in April with a $225 million bid for the Sydney-based firm, which was then upped to $270 million a few weeks later.
The deal was almost a sure thing, giving SS&C its first Australian presence following its failed attempt to buy Link Holdings Group in January and GBST Holdings in 2019.
This was then upended earlier this week when Mainstream accepted a higher proposal from Apex Group – which has established itself as a global provider in recent years through a series of takeovers of fund services firms from Luxembourg to Brazil.
In response, SS&C has now increased its bid to $270 million.
“In the absence of a superior proposal, and subject to the independent expert concluding that the revised scheme is in the best interests of Mainstream shareholders, being customary carve-outs, the board of directors of Mainstream intends to support the revised scheme of arrangement on that basis,” SS&C stated in a press release on the announcement.
So how has Mainstream attracted these two massive fund services giants known for their high-profile acquisitions?
The firm has established itself as a leading provider of administration, accounting, middle-office, share registry and transfer agency services for the Australian superannuation funds, family officers and asset management market. It also provides services to clients based in Singapore, Hong Kong, Ireland, Malta, the Island of Man, the Cayman Islands and the US.
Most recently, it announced assets under administration for the first quarter of 2021 of AUD$272.2 billion, an increase of 45% year-on-year. It attributed this growth to the onboarding of the Pendal Group’s Australian funds with around AUD$19 billion of assets, as well as strong inflows from existing Australian clients.
Mainstream’s CEO Martin Smith recently commented on the results: “It is beyond our expectations and our strongest quarter-to-date. This result reflects our ongoing investment in enterprise solutions for larger fund managers. We are well positioned to attract more clients of this calibre and expected to see ongoing demand for our scale and expertise in functional outsourcing in areas such as unit registry (transfer agency), middle-office and custody.”
Following the new SS&C bid, Mainstream has terminated its discussions with Apex, and is expected to close in the third quarter of this year.
It seems that SS&C has been able to come out on top of this titan showdown, however, it may not come to any surprise if this saga continues.
Elsewhere in the fund M&A space, we saw Deutsche Boerse take on full ownership of Clearstream Funds Centre, formerly UBS Fondcentre, paying an additional $428 million, taking the value to the fund distribution and processing business to over $800 million.
The purchase came a month after Euroclear announced it had agreed to acquire global digital fund distribution platform MFEX Group, where it plans to combine it with its FundSettle post-trade operations.
The moves will enable them to expand their network to provide order management settlement and asset servicing, and creates a new battleground for the two rival global market infrastructure firms to compete in.
2021 year has proved to be an extremely exciting one in the fund services industry, and it’s not even June! Who knows what to expect next for the rest of the year…