Integrated financial services company Sequoia Financial Group Limited (ASX: SEQ) is set to offload 80% of its equity interest in stock broking execution company Morrison Securities to New Quantum Holdings (NQ), a company that provides digital wealth management platform services. 

As a result, the Company will receive $40.5 million, giving Morrison a debt-free balance sheet with net working capital of $10.5 million. Before the transaction is completed, certain conditions must be met, such as the parties signing formal agreements that include the terms agreed upon in the initial agreement.

In H1 FY23, Sequoia’s income fell by nearly $18 million from $79 million in H1 FY22 to $61.1 million. Plus, its net profit fell by $2 million to $600k. It blamed unexpectedly increased employment, transport and marketing costs within its professional services division and its underperformance in the direct investment division. The Company took accountability for its losses, stating divestments as one of its ways to bring back shareholder value.

Thus the Morrison sell-off.

As per its announcement, the Company’s board believed that the opportunity for Morrison to expand its service offering was restricted by its balance sheet. This transaction will allow Sequoia to retain a minority but viable interest in Morrison and provide the business with the capacity to capitalise on opportunities that prioritise Morrison’s growth. 

New Quantum Holding—the company gaining the 80% —is a global provider of FaaS, i.e. FinTech-as-a-Service. It delivers a fully integrated digital platform for wealth managers, family offices, government, asset managers, fintech businesses and financial advisors.

The Company received several expressions of interest in acquiring part or all of Morrison over recent times but selected New Quantum because it would allow Sequoia to retain an active role in Morrison. 

“This growth will be guided by our experienced and professional executive team at Morrison who will continue to manage the business alongside NQ who are committed to investing in technological solutions that will improve the service offering to the very loyal customer base of Morrison,” the report noted.

New Quantum has already paid a deposit of $1.5 million following a binding term sheet. It will pay $9 million by 20 March 2023, and Sequoia will receive $1.65 million of this amount while $7.35 million will be held in trust and paid to the Company once the Stage 1 ‘Completion Payment’ of $15 million has been made.

By the end of May 2023, New Quantum will pay the $15 million, and then the Company will give it 50.1% of the shares. And by August 31, 2023, New Quantum will pay the balance, and Sequoia will transfer the remaining 29.9% in Morrison to NQ. 

Sequoia will earmark $500k of the purchase price to establish a trust for all employees of Morrison Securities.

The divestment, which will be completed in August 2023, will have no impact on the Company’s FY23 results. But it will see its group revenue fall by about 20% in FY24.