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Challenger (ASX: CGF) has formed a strategic partnership with Elanor Investors Group (ASX: ENN) in a transformational deal that more than doubles the junior partner’s funds under management to $6.4 billion.
The move, aimed at firming up the funds management groups’ respective offerings to retail, institutional and high net worth investors, involves Challenger selling its Australian real estate business to Elanor for $42 million.
Elanor is funding the transaction through the issue of 27.4 million shares, giving Challenger an 18.2 per cent equity stake in the company as well as board representation.
Today’s announcement buoyed investor sentiment in Elanor, with the group’s securities surging 19 per cent at the open to a high of $1.76.
Elanor currently manages more $3 billion of real estate investments across Australia and New Zealand largely focused on the commercial, office, healthcare, retail and tourism sectors.
Challenger, an annuities specialist with $99 billion of funds under management, has $3.4 billion in funds under management in its Australian property arm, Challenger Real Estate, which is invested in retail, office and industrial assets.
The partnership will provide each company with an exclusive distribution arrangement where Elanor’s fund offerings will be distributed through Challenger’s multi-affiliate business, Fidante, while Elanor will become Challenger’s commercial real estate partner in Australia and New Zealand.
Challenger is looking to leverage Fidante’s distribution capability and Elanor’s real estate platform to create a new Fidante affiliate manager that the company says ‘offers a very compelling proposition for retail, high-net-worth and institutional customers’.
“The combination of Challenger’s real estate platform with Elanor will provide a significant uplift in capability and scale,” says Challenger’s CEO Nick Hamilton.
“Elanor’s track record in originating high quality real estate opportunities, combined with Fidante’s award-winning distribution capability, will allow us to meet more customer needs.
“Challenger will benefit from both alignment and access to growth via the acquisition of a strategic stake in Elanor, and we are excited to continue to grow the real estate platform together with the Elanor team.”
Elanor securities, which last traded at $1.48 yesterday prior to today’s announcement, will be issued at $1.52 to Challenger to finance the acquisition of the real estate business. The deal is subject to claw-back provisions of up to 50 per cent over three years pending milestones being reached, including minimum funds under management fee targets.
The sale will be subject to Elanor securityholder approval as well as regulatory approvals, but it is expected to be completed by 30 June 2023.
Challenger expects the partnership to be earnings-per-share neutral in the first year.
Elanor CEO Glenn Willis says the partnership delivers on the group’s key objective to grow funds under management.
“This is a transformational transaction for Elanor,” he says.
“Combining Elanor’s real estate funds management capability with Challenger’s market leading capital raising platform delivers significant size and scale benefits, and positions us for further strong growth.”
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