PIS merger partner explained

Questions about the future direction of one of Australia’s biggest, non-institutionally owned dealer groups may have been resolved last Friday, but Professional Investment Services' (PIS') potential merger partner comes with its own challenges.

Professional Investment Holdings (PIH), the parent company of PIS, last week made public its intention to merge with listed insurance premium funding company Centrepoint Alliance.

If successful, the deal will keep PIS out of the hands of the financial institutions that dominate the financial advice space — a win for both the group’s executives and advisers. Listing has been another a long-term plan of the founders of PIH, and a number of its longest-serving and best performing advisers are shareholders. Releasing equity for these shareholders has been a recent priority for PIH managing director Grahame Evans.

But the merged group may not be without continued headaches in the short term.

Like PIS, Centrepoint struggled during the 2008-09 financial year, recording a net loss of $30.5 million and coming under pressure from its bankers to reduce its gearing levels, resulting in a three-month trading halt. During the 2008-09 financial year the group wrote down $28.3 million in goodwill and intangibles, discontinued its commercial finance business and scaled back its core business of insurance premium funding.

The group’s funding arrangements with its principal banker, the National Australia Bank (NAB), are only secured until September this year. In its last annual report the group said it was working to decrease its reliance on that one funding source. PIH also has more than $3.9 million in managed investment scheme loans that must be repaid before the end of October this year.

NAB declined to comment on the implications of the proposed merger. NAB have an option over 19.8 per cent of PIH shares until September this year, while Aviva PLC has a 4 per cent stake in PIH through Aviva Limited.

Centrepoint Alliance was created through the merger in 2005 of Centrepoint Alliance and the Alliance Finance Corporation, with Centrepoint Alliance having been listed in 2002. In 2006 the group acquired OAMPS Premium Funding, the insurance premium funding arm of OAMPS Limited.

Antony Robinson would be the managing director of a merged Centrepoint/PIH business, having taken the reins of Centrepoint in July last year. Robinson’s background is in the financial services industry, having been chief executive of IOOF Holdings and managing director and chief executive of OAMPS Limited. He remains a director of the Bendigo & Adelaide Bank. The board of the combined business would comprise an independent Chairman, and equal representation from both companies, but the deal will hand 80 per cent of the post-merger entity to PIH shareholders.

While both groups have faced struggles in recent years, it’s not hard to see the potential benefits of a merger.

Centrepoint relies on insurance brokers to promote its business, and PIH has one of the biggest financial planning, insurance and accounting networks in the country, as well as having extended reach into non-aligned, boutique dealer groups through subsidiary business Associated Advisory Practices. Centrepoint also owns a now dormant mortgage financing business, while PIH is seeking to leverage the profits in its subsidiary lending business, Australian Loan Company.