Upping the ante
It has been all action at Mainstream (ASX:MAI) recently with the fund administrator receiving a second, vastly improved, takeover bid a few weeks ago. Initial bidder Vistra did not come to the table with the price ‘seemingly’ too rich, and even as Mainstream clearly has substantial operating momentum. The latter was confirmed yesterday as the company reported record funds under administration (FUA) at the end of the March quarter.
The recommended offer of $2 a share from the second bidder on the scene, SS&C Technologies, has however not been the final chapter in Mainstream’s status as a listed entity.
Mainstream went into a trading halt today, and has announced that SS&C’s bid has been upwardly revised to $2.25 a share. This was after a non-binding indicative offer was received from a third party at $2.20 cash per share. The identify of the third party has not been disclosed, and Mainstream has now terminated discussions with them. The directors of Mainstream recommended that Shareholders vote in favour of the revised scheme.
We are not completely surprised that a third bidder has entered the fray. Mainstream has a great business, and the prospect of further bids cannot be completely ruled out. In any event we recommend Members sit tight for now and await any further developments which may or may not be forthcoming.
Mainstream (ASX:MAI) will remain firmly held in the Fat Prophets Portfolio.
As detailed in our previous coverage of Mainstream, on 12th April, the company received a vastly superior takeover proposal to that received from Vistra on March 9th. SS&C Technologies has offered $2 per share in cash, which is a 67% premium to Vistra’s bid.
Under the terms of the original deal, Vistra had until 16th April to submit a matching (or superior) offer. Vistra chose not to do so, and SS&C’s superior bid has been recommended by Mainstream management. In terminating the earlier arrangement Mainstream will pay Vistra a break fee of $1.708 million, but this is ‘small beer’’ given SS&C is valuing Mainstream at $100 million (and now $130 million) more than Vistra’s initial pitch. Vistra is obliged to ‘support’ the higher revised proposal.
Yesterday’s quarterly update from fund administrator Mainstream reinforced why SS&C Technologies came calling with a knockout bid, to floor the approach from Vistra. And also why it has ‘upped the ante’ after the arrival of a third bidder. Mainstream has reported that funds under administration reached $272.2 billion at the end of the March, up 21% quarter on quarter, and 45% ahead of where it was a year ago. Of the $85.2 billion increase over the past 12 months around 78% has been attributed to new inflows and the remainder to market movements.
Source: Mainstream (ASX:MAI)
FUA was propelled by the onboarding of asset manager Pendal, and net client inflows overall were some $41.7 million during the quarter. Funds administered increase by 162 over the three month period to 1,364, and investor numbers surged by 19,000 to 176,000. CEO Martin Smith said the results was “beyond expectations” and the strongest quarter for the company to date.
Source: Mainstream (ASX:MAI)
Elsewhere in the business funds under custody rose 3% to $16.9 million, with a net increase of 12 funds. The US private equity business also continues to justify management’s investment and focus – funds here rose by 6% to $22.3 billion during the quarter, with a net increase of 33 funds.
At $2 a share and 26 times FY21 earnings guidance, we still thought that SS&C were still getting a good deal. The suitor clearly is of a similar view, and having raised their offer price to $2.25 per share.
We are not completely surprised that a third bidder has entered the fray. Mainstream has a great business, and the prospect of further bids cannot be completely ruled out. In any event we recommend Members sit tight for now and await any further developments which may or may not be forthcoming.
Mainstream (ASX:MAI) will remain firmly held in the Fat Prophets Portfolio.
Disclosure: Interests associated with Fat Prophets declare a holding in Mainstream (ASX:MAI).
