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KKR agrees $1.1bn deal to buy Commonwealth Bank of Australia wealth management arm

Jamie Smyth in Sydney

KKR is paying A$1.7bn ($1.1bn) to buy a 55 per cent stake in Colonial First State, an Australian wealth management group owned by Commonwealth Bank of Australia (CBA), the nation’s largest lender by assets.

KKR’s appetite for global deal making remains undimmed despite the coronavirus, which has piled financial pressure on the client companies of private equity owners that typically use large amounts of debt funding to complete transactions. On Tuesday KKR agreed to invest$750m into debt-laden cosmetics maker Coty in the first step towards a broader deal aimed at buying a majority stake in the group.

The CBA transaction, which was announced on Wednesday, marks the latest in a series of Australian deals for the US private equity giant, which acquired accounting software company MYOB and biscuit maker Arnotts last year in deals worth a combined A$5bn last year. The sale price represents a multiple of 15.5 times Colonial’s pro forma net profit after tax of approximately $200 million, according to a statement from CBA.

KKR said it expected to make the investment from its Asian private equity fund and the deal would require the approval of Australia’s foreign investment review board.

“We look forward to working closely with Colonial First State to enable it to thrive as a standalone business and for us to consider new and exciting opportunities together,” said David Lang, KKR Australia’s head of private equity.

Colonial First State is one of Australia’s biggest wealth management groups with more than A$130bn in assets under management. The deal values the entire Colonial business at about A$3.3bn.

The transaction marks the latest stage in a strategic overhaul by CBA, which is simplifying its business to focus on core banking services following a recent public inquiry that detailed widespread misconduct across its wealth management businesses.

In 2018 it sold the international arm of the wealth business, Colonial First State Global Asset Management, to Mitsubishi UFJ Trust and Banking Corporation for A$4.1bn. At the time it signalled the demerger of the domestic wealth business and its mortgage broking arm.

KKR and CBA said they intended to undertake a significant investment programme to strengthen Colonial’s business.

The proceeds of the sale of a controlling stake in Colonial will strengthen CBA’s balance sheet, which faces an additional A$1.5bn hit from bad debts arising from Covid-19. Tier one capital — a measure of balance sheet strength — fell 111 basis points to 10.3 per cent at end March following payment of dividends and provisions linked to the new Covid-19 related loan losses.

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