Spotlight on Mutuals – Some Emerging Issues
02 December 2016
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Our presentation on “What is a Mutual worth to an Investor? The challenges and opportunities of valuing a Mutual in the current market” generated a good discussion. The takeaway was that:
- Many operational aspects of the Mutual’s business which are comparable to those of other ADIs can be valued / benchmarked more readily in the context of a market valuation; and
- A number of structural and delivery aspects of a Mutual’s business which are closely tied to the ethos of Mutuality and a Common Bond are less readily able to be valued (and understood) by the market.
Delegates raised a number of interesting points including the following:
- How do we benchmark the value of our Mutual with the metrics of recent M&A activity in our sector?
BDO: The YCU / Auswide transaction metrics generated the most interest. From a valuation perspective, an independent expert concluded the transaction was ‘fair and reasonable’ as the consideration provided per YCU member share was materially consistent with that of the value of the YCU member share before the transaction. An indicative valuation of your Mutual generally using approaches such as the NTA or Earnings approach will assist you to form a view on the value per member share of your Mutual.
- How should we view synergies? What if the acquirer is not a licenced ADI?
BDO: The value of some synergies in any transaction may be included in a fair value assessment to the extent the value could be reasonably crystallised by a marginal acquirer, although it is rare for a 100% of the benefit to be included in a fair value calculation. ‘Blue sky’ benefits of acquiring a Mutual are not synergies. In the case of a Mutual, if a natural acquirer is a larger ADI, any benefits which such acquirers may generally incorporate in their assessment including a) cost savings related to common back office functions b) reduced regulatory capital requirements of the Mutual may contribute to synergies. Where the acquirer is not a licenced ADI, then there may be additional special value to them from acquiring a Mutual entity.
- A delegate noted that Canada’s Mutuals industry has a long history. Its operating model and regulatory oversight is more comparable to Australia relative to that of the US credit unions industry.
- Delegates also discussed alternatives to generate / realise value as a Mutual – a) the banking alliance model b) partnering with Fintechs c) partnering / merging with non-ADI mutuals eg the QTMB/RACQ model
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