INSIGNIA FINANCIAL LTD — M&A Activity 2014

May 15, 2014

IOOF to acquire SFG Australia

16 May 2014

About the transaction

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• IOOF Holdings Limited (“IOOF”) and SFG Australia Limited (“SFGA”) have entered into a Scheme Implementation Agreement under which IOOF proposes to acquire all the shares in SFGA via a Scheme of Arrangement

• SFGA shareholders will be offered 0.104 IOOF shares for each SFGA share (“the Share Consideration”)

• IOOF is also making available a cash alternative, subject to a maximum cash component of $100m in aggregate

• SFGA’s Board unanimously recommends that its shareholders vote in favour of the Scheme, and SFGA Directors intend to cause any SFGA shares in which they have a relevant interest to be voted in favour of the Scheme, subject to an independent expert concluding that the proposed transaction is in the best interests of SFGA shareholders and in the absence of any superior proposal

• The transaction is expected to be at least 8.3% cash EPS accretive for IOOF by FY 2016 (including synergies)

• Pre-tax synergies from the merger are expected to exceed $20m per annum by FY 2016

• The combination is in line with IOOF’s advisor-driven growth strategy

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About SFGA

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SFGA is a leading non-aligned client focused financial advice and end-to-end wealth management firm in Australia

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Advice
Professional Advice (End-to-End) Affiliate B2B
 Shadforth Financial Group  Western Pacific Financial  SFG Alliance Services
– Advisors –
High Net Worth (“HNW”) focus Services third party financial
–
– Dealer group owned by SFGA planning firms and dealer
123 employed advisers
– groups
 Lachlan Partners 16 practices and 43 advisers
– Private clients and SME business owners
– 46 accountants and 11 financial advisers
Solutions & Support
Portfolio Construction/ Insurance & Lending
Platform Services Stockbroking Corporate Services
Management Services
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SFGA’s financial performance

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Revenue ($m)
165.6
134.3
115.7 118.3
1
2011 2012 2013 2014E
EBITDA ($m)
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FY 2013 Revenue by channel

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6% [5%]
89%
Professional Advice Affiliate B2B
FY 2013 Revenue by business mix
7% [6%]
12%
49%
26%
Financial Advice Portfolio Administration
Insurance & Mortgage broking Other 2
Portfolio Management
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57.0
48.1
39.2 41.9
1
2011 2012 2013 2014E
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Source: Company filings, Bloomberg (15 May 2014). Note:

1. 2014E is based on broker consensus as per Bloomberg (15 May 2014). 2. Includes: Stockbroking, Accounting, Other.

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Details of the transaction

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		IOOF and SFGA have signed a Scheme Implementation Agreement under which IOOF proposes to acquire
The transaction		all of the shares of SFGA via a Scheme of Arrangement
		The Scheme meeting is likely to be held in early August 2014
		Exchange ratio of 0.104 IOOF shares for each SFGA share
		Implies $0.90 per SFGA share and a $670m equity value1
Consideration		SFGA shareholders can elect to receive the Scheme consideration in IOOF shares or a cash alternative,
		subject to maximum total cash component of $100m2
		Cash funded by bank facilities
		SFGA’s Board unanimously recommends that its shareholders vote in favour of the Scheme, and SFGA
Target board		Directors intend to cause any SFGA shares in which they have a relevant interest to be voted in favour of
recommendation		the Scheme, subject to an independent expert concluding that the proposed transaction is in the best
		interests of SFGA shareholders and in the absence of any superior proposal
		“No talk” and “No shop” provisions subject to customary fiduciary carve-outs
		Break fee of $6.0m, payable in circumstances considered standard in a transaction of this nature
		Approval required from SFGA shareholders, the Supreme Court and the relevant regulatory authorities
Other terms		Several SFGA directors and shareholders have entered into call option deeds3 with IOOF giving IOOF the
		right to purchase approximately 16% of the issued share capital of SFGA in certain circumstances
		Messers Kilkenny, Gannon and Fenning have agreed to join a new SFG Advisory Forum which will advise
		the SFGA businesses following the merger

Note:

1. Based on IOOF’s 90-day VWAP as at 15 May 2014. Equity value calculated using SFGA shares outstanding of 741m including performance rights.

2. The cash equivalent is calculated based on the VWAP of IOOF shares in 10 trading days immediately before the Scheme meeting.

3. The details of the call options will be disclosed in a substantial holder notice to be lodged with ASX by IOOF in the due course.

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Why SFGA?

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Complementary business	 	Captures revenue across the value chain including advice, portfolio administration, accounting, insurance, SMSF administration and investment management Natural fit with IOOF’s existing capabilities
		Strong HNW client retention and profitability
HNW proposition		– $88m FUA per adviser
		Provides brand/capabilities to target HNW and affluent clients
		Positions IOOF as Australia’s 3rd largest advice business by FUA
Enhanced scale		19% increase in total advisers to ~1,120
		IOOF’s due diligence of SFGA has confirmed meaningful synergies, expected to exceed $20m per annum
		pre-tax by FY 2016
		Differentiated advice proposition
Salaried model		Planners subject to restraint of trade provisions through employment agreements and planner business
		acquisition agreements
		Shadforth Financial Group awarded the Money Management Independent Dealer Group of the Year for 2013
High quality advisers		70% of advisers CFP qualified (vs 23% industry average)
		Deep pool of advisers supported by internal development team and regional management structure
SMSF capabilities	 	Enhances exposure to SMSF clients Opportunity to broaden administration and advice proposition, including accounting advice to SME owners

Source: Company filings, Money Management Top 100 Dealer Group Survey 2013.

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Complementary business

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SFGA’s businesses are similar to those of IOOF but different in focus

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IOOF Saturn
Revenue streams  Platform (49%)Investment Management (20%)Financial Advice (14%)Other (17%) [1]  Financial advice (49%)Portfolio Administration (26%)Portfolio Management (6%)Accounting (4%)Other (15%) [2]
 182 advisers
 937 advisers
– c. 42 affiliated
Type of adviser – c. 900 affiliated – c. 140 salaried
– c. 30 salaried
 46 accountants
Advice focus  Mainly mid-market and mass affluent  Mainly HNW, affluent and SME clients
clients
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Source: Company filings; percentages of revenue are calculated on FY 2013 filings. Note:

1. Includes: Stockbroking, Estate & trustee, Other.

2. Includes: Insurance & Mortgage Broking, Other.

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SFGA national footprint

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SFGA has a strong national adviser network

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Western Australia
–
1 State Manager
–
1 Advice Manager
– 9 offices
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Source: Company filings. Note:

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Queensland
–
1 State Manager
–
1 Advice Manager
– 4 offices
34 offices nationally
– 18 Shadforth & Outlook
– 16 Western Pacific
– 3 Lachlan Partners [1]
New South Wales
–
1 State Manager
–
1 Advice Manager
South Australia – 6 offices
–
1 State Manager [2]
–
1 Advice Manager [2]
– 3 offices
Victoria
–
1 State Manager
Tasmania – 1 Advice Manager
– – 9 offices
1 State Manager [2]
–
1 Advice Manager [2]
– 3 offices
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1 Lachlan Partners operate from established Shadforth and Western Pacific offices. 2 State Manager and Advice Manager manage both Tasmania and South Australia.

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Post-acquisition operating model

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IOOF intends that it will be business as usual for SFGA’s clients, advisers, accountants and employees

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IOOF
Platform Management and Financial Advice and
Investment Management Trustee Services
Administration Distribution
B2B Professional Advice Affiliate
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Source: Company filings.

IOOF’s advice businesses

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Different advice models for different client segments

Financial Advice and Distribution Overview Largest financial Financial and Long term knowledge Strong history of planning partner of A small and dedicated accounting adviser to and expertise in supporting advisers at choice to credit union group supporting high HNW and affluent supporting advisers any stage in their and building society net worth clients in clients and SME aligned to accounting practice development members across Western Australia business owners practices growth or succession Australia Type of advice Mostly salaried Aligned Aligned Aligned Mostly salaried FUA $13.7bn $31.9bn No. of 182 734[1] advisers

Source: Company filings, Money Management Top 100 Dealer Group Survey 2013. Note:

1. Excludes Ord Minnett (203 advisers).

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Pro-forma business mix

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IOOF’s business will be more diversified post-transaction

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IOOF [1] SFGA IOOF (Pro-forma)
0% 8%
6% 7% [6%] 9%
11%
37%
12%
14% $386.6m 49% $134.3m 16% $520.9m
Revenue Revenue Revenue
75%
20%
30%
Financial Advice & Portfolio Admin 3 Platform Financial Advice
Platform Investment Manag. Insurance & Mortgage broking Investment Management Other 5
Financial Advice Stockbroking Other 4 Stockbroking
Estate & trustee Other
Portfolio Management
FUMAS [2] of $123.9bn FUMAS [2] of $30.5bn FUMAS [2] of $154.4bn
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Source: Company filings (FY 2013). Notes:

1. IOOF revenue = gross margin for each business unit + stockbroking gross margin.

2. FUMAS – Funds Under Management, Administration, Advice and Supervision (data as at 31 March 2014), SFGA has no Funds Under Supervision.

3. Financial Advice and Portfolio Administration have been grouped for illustrative purposes.

4. Other includes: Stockbroking, Accounting, Other.

5. Other includes: Insurance & Mortgage Broking, Accounting, Estate & trustee, Other.

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Combined market position

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The combined business will be the third largest Funds Under Advice (FUA) provider in Australia

FY 2013 Funds Under Advice

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$bn
110.070.0 1
101.1
60.0
50.0 47.3
45.6
43.3
40.0
35.0
1
31.9
30.0
26.2
20.0
14.6 1
13.7
10.0 7.7 7.3
4.1
0.0
Pro-
forma
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Source: Company filings (FY 2013), Money Management Top 100 Dealer Group Survey 2013, company website. Note:

1. As at 31 March 2014.

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Financially attractive transaction

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Attractive relative		Attractive valuation relative to recent transactions in the wealth management industry
valuation		– 18.5x December 20131 earnings
		Significant synergies expected through the rationalisation of overlapping cost bases
		– Removing duplicate support infrastructure and ASX listing structure
Significant synergies
		– Centralising and consolidating shared services functions
		Synergies from the proposed acquisition are expected to be at least $20m per annum pre-tax by FY 20162
EPS accretive3		~8.3% cash EPS accretion by FY 2016 (including synergies)
Retain balance sheet		Pro-forma Net Debt / EBITDA of ~0.4x post-transaction4
flexibility		Capacity to fund further bolt-on acquisitions as required

Source: Company filings (FY 2013, 1H 2014), Bloomberg (15 May 2014). Note:

1. Based on SFGA December 2013 LTM UNPAT adjusted for Lachlan Partners; based on IOOF’s 90 day VWAP to 15 May 2014.

2. IOOF’s synergies estimate based on the due diligence completed prior to announcement.

3. Based on IOOF 2016E UNPAT (Bloomberg consensus), SFGA 2016E UNPAT (Bloomberg consensus), Synergies of ~$20m, Integration costs ~50% of synergies.

4. Pro-forma net debt based on consensus 2014 net debt and additional $100m of funding. FY2014E EBITDA based on Bloomberg consensus (15 May 2014).

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Conclusion

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• Highly complementary transaction which significantly enhances the position of the combined group

• The group will become the third largest advice business by FUA in Australia

• Expected to deliver significant value to shareholders of both SFGA and IOOF

• Diversifies IOOF’s business model

• Several SFGA directors and other shareholders have entered into call option deeds giving IOOF the right to purchase approximately 16% of the issued share capital of SFGA

• Messers Kilkenny, Gannon and Fenning have agreed to join a new SFG Advisory Forum

• Due diligence analysis has confirmed meaningful synergies

• ~8.3% cash EPS accretion by FY 2016 (including synergies)

• Consistent with IOOF’s stated strategy of growth through value accretive acquisitions and its vertically integrated wealth management model

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Appendix
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Indicative timeline

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Late June 2014	First Court Hearing
Early July 2014	SFGA to dispatch Explanatory Memorandum to its shareholders
Early August 2014	SFGA Shareholder Scheme Meeting
Early August 2014	Second Court Hearing
Early August 2014	Effective Date
Mid to late August 2014	Implementation Date

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Disclaimer

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Issued by IOOF Holdings Limited ABN 49 100 103 722. The information contained in this presentation is given in good faith and has been prepared from information believed to be accurate and reliable. The information presented does not take into account your individual financial circumstances and it is not designed to be a substitute for specific financial or investment advice or recommendations and should not be relied upon as such. You should consider talking to your financial adviser before making an investment decision. So far as the law allows, IOOF excludes all liability for any loss or damage whether direct, indirect or consequential.

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