As you will see from the chart below, we estimate that the transfer agency market - measured by shareholder records maintained - dropped by roughly 5% between our last estimates in 2017 vs. year-end 2019… producing some very interesting shifts in market share at several agents.
In step-one, we took the 2017 per-agent numbers down by 5%, due to “secular attrition” - namely the loss of registered investors whose shares are sold or transferred to street-name each year, in what is currently an unrelenting and seemingly irreversible trend - plus the continued loss of publicly-traded companies and their registered shareholders due to M&A activities and bankruptcies.
We also assumed that most of the shareholder accounts that closed during 2018 and 2019 will stay active on T-A records and be fully “billable” for one full year; so only a 5% decline vs. an actual 10% decline over the two-year period.
In step-two, we adjusted the numbers for significant changes of agent that happened in 2019, where Computershare gained a whopping 2 ½ points of market share, in a shrinking marketplace - by acquiring both The Walt Disney Company (850k records) and the Microsoft business (93k) while ending up even, in terms of accounts maintained, after their two huge wins.
Please bear in mind as you look at the chart that market share based on total revenue - i.e. the real bottom line - is a different thing entirely. Here are a few additional comments:
AST actually saw their share of total records maintained rise in a business where, overall, as noted, five percent of total shareholder records rolled off…And they have a new product on the launching pad that we think has the potential to be a major game-changer in the industry. They have the largest number of client relationships by a fairly large margin, we estimate - which gives them much better than average opportunities to cross-sell a variety of related services with higher margins, albeit to clients with smaller than average budgets. And, good news for them going forward, the number of registered shareholder accounts per client tends to be “mostly small but very sticky”…and they continue to do well in the IPO space - and maybe even enjoy a competitive advantage by serving so many small companies
Broadridge saw its market share - in terms of “shareholder records maintained” - drop by half, But, very important to note, they retained all of the revenues associated with proxy-processing services at both Disney and Microsoft where a great deal of the “value” and a lot of the cash from ‘shareholder servicing’ resides these days. And they continue to add registered proxy tabulation clients at the expense of the other T-As. Note too, that the annual and special-meeting services they provide for street-name holders is a multi-billion-dollar “shareholder servicing business” on its own.
Computershare has a huge and GLOBAL stock transfer business - and, thanks to its super-large base of super-large clients, it continues to have the lion’s share of high-ticket and highly profitable “reorg business” in the U.S. - and of the gross industry revenues too - though as we always note, reorg work is something of a double-edged sword, in that, very often, they lose long-term clients - typically with very large shareholder bases - once the reorg dealin’s are done.
EQ’s shareholder base dropped by 5% - in sync with ‘secular roll-off” - although a smallish acquisition they made before 2019 was over may bring them back a tiny bit in 2020. EQ is actually the heaviest on mega-cap clients as a percentage of its total business, so they tend to have the most to lose, percentage wise, in the aftermath of M&A activities. Following their acquisition of the shareowner servicing business from Wells Fargo Bank, there has been a huge flurry of attempts to beef-up and better diversify their portfolio of U.S. business - in already crowded spaces, we’re forced to note: They’ve launched a proxy solicitation business, an Employee Ownership Plan business, bought a smallish Colorado-based transfer agent that specializes in micro-cap companies - and they have ditched their longstanding strategic partnership with abandoned property experts Keane - arguably the best-known and most widely regarded firm in the industry - to take the work fully in-house. Recently, they have engaged in a fairly major housecleaning, along with some simultaneous staffing-up efforts, by bringing in a very senior client relationship manager from Wells Fargo’s banking division, making small but telling cuts in the sales and R-M team and appointing a new sales manager…so we will be watching all this with special care.
As we look ahead to 2020, a host of “reorg deals” were done in 2019 and many others are in the offing …like the expected merger of Tiffany & Co. (founded 150 years ago, and a truly iconic brand name) into LVMH; Zerox’s attaempt to acquire HP - and the “new-DuPont’s” deal to acquire International Flavors and Fragrances - yet another iconic name. And Ouch again! - there’s a possible going-private deal in the offing for widely-held Walgreens Boots, and a bankruptcy proceeding at PSE&G that could largely decimate its large base of retail shareholders. Mostly bad news, we’re sorry to say, for keepers of registered shareholder records.
A few mergers each year still involve the issuance of stock, but on the whole, net losses of registered investors in the 5%+ range per year are, as we noted, inevitable…unless a way is found to reverse the loss of individual investors in individual stocks.
Share
Share the Optimizer with your colleagues!