Link Administration Holdings 

LNK Details

Link Administration Holdings (ASX: LNK) has entered into a binding agreement to acquire Capita Asset Services (CAS) from Capita plc (Capita) for £888 million (~A$1,493 million). The Acquisition is subject to mandatory regulatory approvals and is expected to complete by 31 December 2017. CAS is an established player in providing a range of financial and administrative services in the UK & Europe, operating across four business segments including Fund Solutions, Shareholder Solutions, Corporate & Private Client Solutions and Banking & Debt Solutions. For 12 months to 31 December 2016, CAS reported revenue and Operating EBITDA of £316 million (~A$532 million) and £72 million (~A$121 million) respectively.

The Acquisition will be partially funded via a fully underwritten A$883 million, 4 for 11 pro rata accelerated renounceable entitlement offer with retail rights trading (Entitlement Offer), and the balance of the acquisition will be funded through a combination of existing cash and available debt facilities, including a new £485 million acquisition debt facility. Link Group remains committed to maintaining a prudent balance sheet, with net debt to EBITDA ratio of approximately 2.8x following the Acquisition.

Provides immediate scale in the UK and a growth platform for Europe
 
The acquisition of CAS is aligned with Link Group’s strategy to grow through further penetration of attractive markets and expand its product and regional capabilities. The acquisition will further diversify Link Group’s revenue and earnings base from a geographic perspective, with revenue from Australia and New Zealand reducing from ~ 93% to ~ 55% on a pro forma basis.  Notably, the acquisition provides the Company with established market positions in multiple sectors in the UK and an established footprint in Europe for further growth as CAS administers and safeguards approximately £600 billion of assets and managed approximately £45 billion in annual payments for its customers in 2016. There will also be scope for the introduction of some of Link Group’s existing core products and services into the European market over time, with several opportunities already being explored.
  
Targeting synergy benefits of ~£15 million per annum
 
Link Group is targeting efficiency benefits of at least £15 million per annum to be fully realized over the medium term, through increased investment in systems to enhance automation and streamline processes, rationalization and consolidation of CAS’ premises and improved utilization of labor in more cost-effective markets. The CAS business is highly attractive due to defensive revenues (>50% contractually recurring in nature, although a higher proportion is captive), strong margins and high cashflow conversion, making the business highly complementary to Link Group’s existing profile.The acquisition is also expected to be strongly EPS accretive on a pro forma FY17 basis before the impact of efficiency benefits.
 

LNK Daily chart; (Source: Thomson Reuters)

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