Bad Moon Rising

Some deals look great from the start. Others, not so much.

Let’s, for one moment, put aside the question of why anyone, ever, anywhere, wants to make an acquisition. For all the associated flute music about product adjacencies, new skills and new markets, scope and scale, blah, blah, blah, M&A is a messy business, often driven by CEOs who are bored of simply running and growing the core business.

And yet, however much the dogs may bark, the caravan moves on. Every year, numerous deals are done, many of which turn out to be of no lasting value – to shareholders or clients. In 2023, Scrip Issue reported on 44 proposed or closed acquisitions, after 55 in 2022. That’s a lot of deals, and it’s unclear if anyone actually keeps track of how successful they are.

Sometimes, however, a deal is announced that looks so completely out of kilter that, whichever way you look at it, you cannot see the commercial logic – or any logic, come to that. 2023 was no exception, but one announcement in particular raises so many red flags that it is worth examining in more detail to make sure it really is as flaky as it sounds.

Take a bow, Mitsubishi UFJ (MUFG). In December 2023 it announced its intention to acquire Link Administration Holdings, the Australia-based provider of pension administration services. It was, to say the least, a surprise, and not only to hacks like me. Within MUFG, there was clearly a disconnect between what the head honchos in Tokyo had agreed, and what the rest of the bank – which includes MUFG Investor Services – thought about the deal, if they even knew about it. Even though the inserv business was name-checked in the press release (which, incidentally, has still not been published on the MUFG Investor Services website), it is unclear as to how much involvement, if any, it had in the deal.

My guess is, very little. For more than a decade, since it acquired Butterfield Fulcrum in 2013, the inserv business has been trying to position itself as a specialist provider of administrative services to the alternatives sector. Its acquisition strategy since 2013 has been, with one exception, focused on growing that part of its franchise. With further deals to acquire Meridian Fund Services (2014), UBS Alternative Fund Services (2015), Capital Analytics (2016), and Maitland’s private equity and hedge fund business (2019), MUFG was building out its alts capabilities. The one deviation occurred in 2016, when it bought Rydex, an insignificant mutual fund administrator, from Guggenheim.

More than once, MUFG noted that these deals were all part of a plan to build a “leader” in the global investment services industry. Today, its last reported AuA stood at USD790bn, which puts it well outside the top 10 bank and independent providers. It has a well-developed franchise in third-party securities lending, but that’s about it. For most of the leading players, it is irrelevant outside Japan.

It is worth quoting a section of MUFG’s statement about the Link acquisition. “The goal of MUFG’s Global Investor Services business is to meet client’s (sic) diverse needs by providing administration services and value-added financial services to global investment funds, asset managers and pension funds, and to be an infrastructure provider in the financial markets.”

Pension funds? It’s likely that there are some pension funds doing business with MUFG in Japan – but, since when did the inserv business make that one of its key client sectors? The conclusion must be that Tokyo – the right hand – cooked up the Link deal without talking to the left hand, the inserv business. This perception was strengthened by the very bad timing, just as MUFG was announcing the opening of an inserv presence in…Sydney, Australia. Oops. If MUFG has PR advisors, it’s time to fire them.

What about the other side of the deal? To say that Link is troubled would be something of an understatement. In 2023 it was forced to sell its Luxembourg, Ireland and UK businesses, effectively reducing it to the role of a pensions administrator, one of the lowest margin businesses on the food chain. Many of Link’s troubles emanated from its disastrous 2017 acquisition of Capita Asset Services in the UK: Capita acted as ACD to the failed Woodford funds.

MUFG believes that the deal will “enable MUFG to further accelerate its global business expansion via access to Australian funds and global corporate clients”. Good luck with that – just ask any former executive at RBC how tough it is to gain traction in Australia, one of the most competitive pension fund markets in the world.

Link has been here before. In 2020 there was a brief bidding war involving SS&C and a private equity group that included Carlyle, but ultimately Link remained independent. (How times have changed: in 2020 one of Link’s largest shareholders, Perpetual, agreed to the consortium bid as long as it was at least AUD5.20 per share. MUFG has offered AUD2.10).

Even at this reduced price, MUFG is paying a pretty penny to try and gain entry to a market that has seen all the major Australian banks pull out. Link has no known expertise in custody and administration for supers, so MUFG would have to hire, an expensive and difficult proposition in such a hot market. There are multiple lessons to be learnt from recent history down under, and MUFG needs to learn them – quickly. One can only hope that someone, somewhere within the bank has a plan.


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