Over the next 20 years, more than $3.5 trillion of wealth is set to be transferred from the Baby Boomer generation to their beneficiaries. Foreseeing the administration of this wealth management as a hugely lucrative market, fintech company HUB24 (ASX: HUB) is set to acquire market leader Class Limited (ASX: CL1) at an impressive premium for Class shareholders.
Having been long term leaders in SMSF software, Class has built up its market leadership position over the past decade. With regulatory changes limiting the power of SMSF, Trust Management has emerged in recent years as the most effective vehicle to transfer wealth between generations which led Class to launch their Class Trust product in October 2020 as a software solution for simplifying wealth administration and management.
As the first fintech solution of its kind that automated the previously cumbersome admin process most commonly handled via Microsoft Excel spreadsheets, accountants and financial advisors reported time savings as much as 67% using Class Trust, highlighting its potential from a very limited audience.
“Class are market leaders in the establishment, management and administration of wealth and SMSF solutions,” said HUB24 Managing Director, Andrew Alcock.
“The completion of this transaction will combine two exceptionally talented teams with a common purpose to empower better financial futures for Australians and provide a unique range of products and services for financial professionals and their clients.”
Under the court-approved Scheme of Arrangement, the combination of HUB24 and Class will emerge as the market leader in the provision of integrated platforms, data and technology solutions for financial advisers, accountants, private banks, licensees, stockbrokers and their clients.
Pending shareholder approval which has been fully endorsed by the Class Board of Directors, Class shareholders will receive 1 HUB24 share for every 11 Class ordinary shares held and a cash amount of $0.10 for every Class share held. This implies a value for Class of $3.11 per share and a market capitalisation of $386 million (and an implied enterprise value of $411 million) based on the last trading price of HUB24 shares of $33.06 on 15 October 2021.
It also represents a 71.6% premium to the last trading price of Class shares and 76.8% premium to the 1-month VWAP.
As well as the Class technology stack which has undergone a major upgrade over the past three years as part of their Reimagination strategy, HUB24 will also acquire more than 7,700 unique customers that use a Class product.
“The combined strengths of Class and HUB24 will further accelerate the transformation of Class and provide exciting opportunities for future growth,” said Class Managing Director, Andrew Russell.
“We’re pleased Class will continue to run as a separate business unit within the HUB24 group so our team can continue to deliver on our strategy, whilst leveraging our deep technology expertise to deliver superior outcomes to both sets of customers.”
The integration of Class and its tech stack will complement HUB24’s existing investment services platform which offers a comprehensive range of investment options for individuals, companies, trusts and SMSFs.
Making it financially attractive to HUB24 is the established business Class has developed which included a 25% increase in revenue to $54.9m and 15% increase in underlying EBITDA to $21.9m for FY21, two years into the Reimagination strategy. The acquisition is expected to be 8% EPS accretive in FY23 with implementation of the Scheme expected to take place mid-to-late February 2022 and deliver cost synergies of approximately $2 million per annum.
On track to expand the sales and marketing initiatives that have been developed in the first two years of Reimagination, Class is targeting an 18% increase in revenue for FY22 to $65m and 19% increase in EBITDA to $25m.
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