The NSW governments attempts to privatise a small, unknown but vital part of the national financial infrastructure, seems to be hitting a major roadblock which could end the sale with the ACCC expressing serious concerns about one part of the deal if the company – called Pillar – is purchased by a major rival, Link Administration Holdings (LAH).
The ACCC says Link is the largest provider of services in Australia’s fund administration industry, providing services to over 10 million superannuation member accounts through its businesses Link Super and Australian Administration Services. Link has its own proprietary IT platform (the aaspire platform), which it uses for the provision of administration services for most of its clients.
Pillar is a NSW state-owned corporation that provides administration services mainly to Government superannuation funds, pension funds, and defined benefit schemes.
"Pillar administers more than 1.1 million superannuation member accounts, with assets totalling more than $100 billion. Pillar does not have its own proprietary IT administration platform and uses a number of IT platforms licensed from third parties,“ the ACCC explained in a release yesterday.
The IT part of the deal is not a worry for the Commission, but the admin side is – so much so that from the tone of comments yesterday the deal could either frail, or be changed significantly. As a result of the Commission’s statement, Link shares fell more than 7% yesterday to $7.59 and was the biggest faller in the ASX 200 yesterday.
The Commission said in a statement of issues on Link’s proposed acquisition of Pillar, that it could result in reduced service or higher prices for super fund members.
“The ACCC is concerned that the possible acquisition will remove the only alternative superannuation administration services provider with the demonstrated capacity to supply administration services to larger funds in competition with Link,” ACCC chairman Rod Sims said yesterday (http://registers.accc.gov.au/content/index.phtml/itemId/1197870/fromItemId/750991).
The problem from the Commission’s point of view is that Link and Pillar both supply administration services to superannuation funds in Australia. “ hey are the only two providers that currently service larger funds<“ according to Mr Sims.
“The ACCC is concerned that the possible acquisition will remove the only alternative superannuation administration services provider with the demonstrated capacity to supply administration services to larger funds in competition with Link. Consequently, there would be one dominant administration provider facing limited competitive constraint in the outsourced market,” Mr Sims said.
“It would also remove the potential for an alternative owner to further invest in Pillar’s offering and make it an even stronger competitor to Link in the future.”
As a result of these concerns, the Commission says it is "seeking to better understand the barriers to entry or expansion and the likelihood of new entry or expansion in the sector. Other issues include the extent to which insourcing superannuation administration services is a credible constraint on Link and the likelihood of self-administered funds providing administration services to other funds.”
“The ACCC’s preliminary view is that a fund that currently outsources superannuation administration services is unlikely to switch to insourcing as a way of bypassing Link; it would be too costly and difficult,” Mr Sims said.
“The ACCC also considers that funds are unlikely to provide superannuation administration services to each other in a way that competitively constrains Link. It is beyond the remit of most funds to sell administration services, and, furthermore, many funds are likely to be reluctant to purchase administration services from their competitors.”
The ACCC invites further submissions from interested parties by October 28, 2016. The ACCC’s expected final decision date is December 15, 2016.
