In September, it was announced that Count was set to acquire Diverger in a $45.3 million acquisition to create Australia’s third-largest licensee with around $29 billion in funds under management and advice.
Count has 379 financial advisers while Diverger represents 146 financial planning firms and 603 licensed advisers as well as working with 3,000 accounting practices.
Diverger’s major shareholder, HUB24, has backed the transaction and intends to vote in favour of the scheme in the absence of a superior proposal.
In an update, DMX, which has invested in Diverger since 2017 and holds a 5.2 per cent stake, said the firm has demonstrated strong growth and significant profit uplift during that time, although its share price has underperformed.
Over five years, shares in Diverger have risen 23 per cent compared to 18.5 per cent by the ASX 200 over the same period.
“Given the disconnect between value and share price, we consider any reference to the historical Diverger share price in the context of determining fair value is effectively redundant.
“Based on publicly disclosed FY25 earnings targets, the combined Count/Diverger business is expected to be more expensive (5x EBITA) than Diverger on a standalone basis (3.6x -4.3x EBITA), even after the merged business benefits from $3 million of synergies (which will cost $8 million to deliver).
“While there are other benefits to the acquisition (improved liquidity, larger more diversified company), we struggle to see the value basis of this transaction from the perspective of Diverger shareholders.”
Count has said it expects the Diverger deal to improve its earnings per share by more than 25 per cent after realisation of the expected full run-rate cost synergies, and DMX said this demonstrates how much value Diverger is bringing to the transaction.
It also said it has identified approximately $3 million in cost synergies and a number of new revenue growth opportunities to be delivered through a rigorous integration and benefit realisation program.
In light of this value, the fund manager felt Diverger shareholders are “not being appropriately compensated” for the deal.
“We therefore cannot see sense in transacting at this price,” DMX said.
DMX suggested that the improved sentiment towards small cap companies combined with continued strong growth from the company meant there could be stronger share price growth for Diverger shareholders without the need for the risks and costs involved in an acquisition.
