Group managing director James Boonzaier said on Tuesday that the company had bought Bridges, one of Australia's leading master trust and financial planning groups, for $226 million (A$168 mill).
The purchase price of A$168m represents 6.4% of funds under management and 25 times historical proforma earnings which is comparable to prices paid for a number of similar businesses in recent years.
Boonzaier says Bridges is one of the top 10 discretionary master trust providers in Australia, with A$2.7 billion of funds under management.
"Discretionary master trusts are the fastest-growing segment of the retail funds management market showing growth of over 30% a year in recent years," he says.
Bridges also has 110 well qualified financial planners, with estimated fund inflows of A$800 million annually and a further A$2 billion of funds under advice.
"I believe that this is an ideal acquisition for TOWER – it gives a significant boost to our market presence, enhances our distribution strategy and continues our strategic focus on the fast growing Australian retail wealth creation market," he says.
The Bridges network will be Tower's cornerstone financial planning group, making it the equivalent to Tower Financial Advisory Services in New Zealand.
Standards and Poors says the deal is "very significant for Tower, which continues its aggressive acquisition-based expansion."Tower has also formed a five-year strategic alliance with Bridges' present owner CUSCAL, the services company of the Australian Credit Union movement.
This alliance, which mirrors the alliance it has with New Zealand Post, gives Tower the opportunity to promote its products to the credit unions 3.6 million members.
CUSCAL will receive A$20m of Tower shares as part of the purchase consideration, and it has agreed to hold these shares for a minimum period of two years. The remaining A$148m cash consideration will be funded by a mix of debt, surplus capital, and a A$20m institutional placement (which has been completed at a share price of A$3.60 per share).
Tower now has assets under management in Australia of more than A$11 billion.
S&P expects Tower will concentrate on consolidating its existing business in the near future and will not undertake any more significant acquisitions within the nexttwo years.
The ratings agency considers that the "ownership and alliance relationships involved (in the deal) are inherently challenging, and that some benefits from the acquisition will only be evident in the longer term."
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