STM Group Plc Acquisition of UK Pensions Business

Posted: 9th October 2018 08:53

STM Group Plc, the cross border financial services provider, is pleased to announce that it has entered into an agreement to acquire Carey Administration Holdings Limited, from the existing shareholder for a maximum consideration of £0.4 million (the "Acquisition").

The Acquisition will be funded from existing financial resources and is subject to regulatory approval by the UK Financial Conduct Authority, as well as requiring notification to The Pensions Regulator ("TPR") in the UK. The approval process has commenced.

CAHL owns 70% of Carey Pensions UK LLP, offering a number of SIPP administration products to the UK market; and 80% of Carey Corporate Pensions UK Limited, offering auto-enrolment workplace pension solutions ("AE") to UK employers.

Highlights of the Acquisition:

  • STM will enter the UK auto-enrolment market via Carey's AE business, offering quality service levels to intermediaries and advisers that wish to offer a more personalised service to their client companies.
  • Carey's AE business is one of the top 20 AE providers in UK by size and currently has over 65,000 members. It is expected to deliver revenue of approximately £1.5 million for the financial year ending 31 December 2018 and has been growing consistently year-on-year. Following completion of the Acquisition, the business is expected to break even during 2019, based purely on organic growth.
  • The UK AE market is undergoing considerable consolidation as part of the upcoming TPR authorisation process - and presents an opportunity for STM to accelerate its growth strategy by acquisition.
  • Carey's UK SIPP business has over 4,000 members and is expected to deliver revenue of approximately £1.8 million for the year ending 31 December 2018. The assets under administration within the Carey UK SIPP business amounted to £898 million as at 31 December 2017.
  • Carey's UK SIPP business offers complementary products to those of STM's SIPP business, including offering Commercial Property SIPPs and SSAS'.
  • The Carey UK SIPP business, and its UK introducers, will benefit from STM's online application processes for ease and efficiency of processing.
  • STM will benefit from significant savings across the two SIPP businesses, estimated at £0.5 million per annum once fully integrated.
  • The Carey businesses will be rebranded within six months of completion.
  • The Board believes that the Carey businesses have a good quality management team that will complement the existing UK STM management team. The enlarged UK business will employ in excess of 100 people and firmly underpins STM's stated intention of being seen as an increasingly UK centric business.
  • STM notes that Carey Pensions is party to a high profile Court case (the 'Adams' case). STM has secured indemnities and the benefit of significant existing PI cover from the sellers and considers any residual exposure to this and any other historic industry issues, to be minimal.

Terms of the Acquisition:

  • The Company has conditionally agreed to acquire CAHL for a maximum consideration of £0.4 million, of which £0.1 million is payable on the first anniversary of completion.
  • The Acquisition is expected to be earnings enhancing in the financial year to December 2019 and thereafter (before any exceptional costs in relation to the Acquisition and integration).
  • CAHL will have at the time of completion not less than £0.1 million of net assets. For the year ended 31 December 2017 it delivered revenue of £2.9 million and a loss before tax of £1.2 million.

Commenting on the Acquisition, Alan Kentish, Chief Executive Officer of STM, said:

"We are delighted to announce the acquisition of Carey Administration Holdings Limited, and its subsidiaries.

"Carey pensions has been a self-starter in the UK pensions market and has achieved a lot under Christine Hallett's leadership during a relatively short time frame. The management team has ideas and opportunities in abundance and I believe STM's resources, financially and otherwise, will allow many of these to come to fruition.

"The integration of the two similarly sized SIPP businesses will give us some straight-forward integration savings and make the enlarged SIPP group much more efficient. We have seen this previously in both our London & Colonial and Harbour acquisitions. In addition, it helps us to offer niche SIPP products to the UK market with minimal financial outlay.

"The Carey auto enrolment business is particularly interesting, given the changes that are occurring within the sector that will almost certainly lead to consolidation amongst the providers. The cost of entry is prohibitive to new entrants from a standing start given that all staging dates have now passed; so that leaves only a limited number of providers in an ever-expanding market. In a similar manner to Carey, we must ensure we offer a more personal service approach to advisers and employers, so as to be able to differentiate ourselves from the larger providers in the sector.

"The newly strengthened Board is fully supportive of the Carey acquisition and sees this as a further step in delivering product diversity and a robust profitable business going forward.

Acquisition Rationale:

The Board believes that the Acquisition is highly complementary to STM's short-to-medium term strategy and its current existing business. Strategically, STM has stated its intention to diversify its product range to cater more for UK residents, as well as its more traditional expatriate market.

The ability to enter the auto enrolment market at a time of change and potential consolidation in this sector is both opportunistic from an organic growth strategy as well as a buy-and-build vision.  The Carey AE business has benefited from significant investment thus far.  The audited accounts for 2017 show a loss for the year of £1.0 million, which is a significant reduction in loss compared to the previous year, and which reflects the impact of the increasing membership.

In addition, the Carey SIPP business with over 4,000 members offers a natural consolidation opportunity when combined with STM's current UK SIPP operation which has circa 3,000 members. The Carey SIPP business expands our UK introducer network and adds specialist SIPP products and expertise that STM currently does not have, such as their UK Commercial property team. As an enlarged SIPP group, STM will be unique in offering SIPP products to both the UK and expatriate market.  The audited 2017 accounts of Carey SIPP showed a loss of £0.2 million, which included exceptional legal and professional fees.

The existing shareholder has taken the decision that their UK pension businesses are not core to their ongoing operations and are thus exiting the marketplace.

The remaining minority interests in the subsidiaries, being 30% in the SIPP business and 20% in the AE business, are held by the existing CEO of the businesses, Christine Hallett (a well-known and respected player in the UK pensions industry) who has entered into an option agreement with STM for them to acquire those minority interests on a pre-agreed basis. The option agreement is valid for three years and will allow STM to become the 100% owner of these subsidiaries once triggered.

Christine Hallett, remaining CEO of Carey Pensions, commented:

"I am really excited that we are going to be part of the STM proposition given STM's focus on gaining further traction in the UK market.  Carey Pensions is ideally placed to help achieve that aim. We are well known in the industry and we have a unique proposition covering both personal and workplace pension solutions, which is an important differentiator compared to many of our competitors. Our extremely professional and experienced team will combine with STM's team to provide a strong platform for growth."

Simon Cole, Chief Operating Officer of Carey Group, added:

"I am delighted that our UK pension investments are going to a good home, in the form of STM. I have watched the impressive progress made by STM in the international pensions market, and it seems that we can now help them with their UK plans. This is a tremendous opportunity for Carey Pensions and on behalf of Carey Group, I wish STM and Christine Hallett and her team every success for the future."

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