Number-Two Transfer Agent Computershare Set To Acquire The BNY-Mellon Business, The Country’s Largest By Far

A Major Game-Changer, For Sure, Though Far From The End-Game, We Predict

Melbourne Australia-based Computershare Limited (ASX: CPU) “the world’s largest transfer agent” – and the number-two US agent by a fairly big margin – signed a definitive agreement in April to acquire the BNY Mellon Shareowner Services business – a move that will affect more than 950 US issuers and roughly 200 corporate sponsors of equity ownership plans if approved by US regulators, as both parties, and we, expect. 

A stunning coup for Computershare in several respects: For openers, the BNYMellon business alone serves more shareholders of record than all the other US transfer agents combined, and a huge number of the 1000 largest companies to boot. So the acquisition will create an almost unbreakable lead in terms of US market share, although, please note, if one uses the number of customers as the measurement, AST will still be the biggest agent on that basis.

Second, as long as the acquisition can be concluded while the M&A and business restructuring markets continue their recent upsurge, Computershare is in line to harvest a bonanza of big-ticket, high- margin corporate-action processing fees…with a likely big-bump for their Georgeson advisory and “information agent” businesses…and a long tail of “asset reunification” business too… in the bargain.

And Computershare has snagged the deal at what we’d consider a bargain price: U.S. $550 million: Just 3 ½ years ago, Australian-owned Pacific Equity Partners (PEP) reportedly paid $1.2 billion U.S. for a controlling interest in AST - a business that’s only a third or so as large when measured by shareholder accounts…although, we’d note that the operating margins, though not the gross income, were a lot higher than BNY Mellon’s by our reckoning. And just a year ago, the Australian press reported that PEP was prepared to pay over $1 billion for the BNY Mellon business.

Most stunning of all, perhaps, our own sources tell us that another bidder was the expected winner until the day before the formal announcement. Ouch!

What are the odds the deal won’t get approved? Long ones, we’d say. If BofA can acquire Merrill Lynch, it’s hard to imagine good grounds to object to this deal. Further, there are still nearly 1,000 U.S. transfer agents…and there have been at least three new entrants – including big, bold and NYSE-listed Broadridge Financial Solutions – in the past three years. Even more to the point, the mere announcement of the deal has triggered massive action on the competitive scene: An issuer – or a competitor – would have to perjure themselves to say the deal is “anti-competitive… although we hear on the grapevine that at least one T-A is trying to make that case. While some competitors would have much preferred a partner other than CPU, most of them are clearly licking their chops… and working their phones…and running the roads like never before, since all of the 1000 or so BNY Mellon customers need to take some sort of action here eventually…and run it by their Boards for approval please remember.

Do we think the “consolidation phase” that has rocked the industry for the past fifteen years is finally coming to a close? No…as our sub-head says. This business is still contracting at a dizzying rate…and the current, global M&A scene, while a short term boon, will hurt big in the end. We were shocked, for example, to see that the BNY Mellon T-A client list had shrunk to 950: When your editor left the biz 19 years ago, the Chemical Bank T-A business (mostly a Manny Hanny legacy) had more than 1700 corporate clients…before the Mellon deal, much less before the BNY deal! Recent figures show that since 1997 U.S. stock exchange listed companies have declined a whopping 43% - from more than 8800 to just over 5,000 today. IPOs are down by 72% vs. 1990s levels…and more and more listings are going to non-US exchanges, where they now total roughly 40,000 to our 5,000. And, as old-time registered shareholders continue to meet their makers - and their heirs opt overwhelmingly for street-name registration - the business has “secular erosion” from this long-running and clearly unstoppable phenomenon of 5% or more per year. Yes, corporate spin-offs, which are also back in fashion these days, will help some…But long-term, the U.S. T-A business will get smaller and smaller, so more consolidation is inevitable. One of our secret-sources says another big change may happen this year…So stay tuned…and if you do need to shop around, shop with care.

So what’s our advice for BNY Mellon customers? And for any other issuers who may be shopping around in today’s environment? Five tips on what to do now:

1. If you’ve issued an RFP and surveyed the field over the past three years - and are basically “OK” with the service you’ve been getting - sit tight for now, we’d say. Staying put is clearly the path of least resistance – and less work for YOU. And frankly, while one vendor we spoke with cited “significant execution risks” in the Computershare deal, we think there are some in any move…And we’d bet that with so much riding on this, “execution” will be the number- one focus at Computershare. Further, in our long experience, most agents have records con- versions down pat these days, so the process is likely to be super-smooth whoever one ultimate- ly chooses…when the time comes.
2. If you have not surveyed the field in a fairly for- mal way for three years or more, you are really overdue for a look anyway. So listen up when you get those calls – and entertain visitors from wannabe providers – but urge them to keep their pitches short, sweet and to-the-point in step- one…to help you narrow down the field for the really thorough look-see and number-crunching efforts that should be mandatory before making such an important decision…and bringing it be- fore your Board, as indeed you have to.
3. If, God forbid, someone at your company signed a contract that permits a transfer agent to transfer the business to another provider without your express permission - regardless of who that T-A may be, by the way - give yourself 1000 “mental lashes” for your hastiness…then reflect on the fact that “the customer is always right”…and the fact that no one wants to have a customer dragged kicking and screaming into a new fold.
4. 4. Go to our website, www.optimizeronline.com and click on our article - under “The Basics” - entitled “A Checklist of Best Practices in Se- lecting a Transfer Agent.” The author was a salesperson for Shareowner Services for over ten years…and was the business manager for another ten at what was then the country’s larg- est T-A, so he knows whereof he speaks…and where, exactly, the many “tricks” of the T-A RFP trade are often expressly designed to go unnoticed by the “uninitiated.”
5. Pay particular attention to the recommenda- tion to hire a T-A RFP expert…at least if the total tab is $50,000 or more per year…which generally translates into a “total spend” of $150,000 or more once the out-of-pocket ex- penses are added in. We have never seen a case where the expert’s advice wasn’t more than cov- ered in year-one by the savings he or she helped to generate…Plus…an expert will make sure you don’t get snookered by self-perpetuating renewal clauses, onerous termination penal- ties, unwarranted caps on the T-A’s liability…. not to mention the risks to YOU of making the wrong choice for your company…even if you think you know what you’re doing when you ink the deal.