Wealth platform Praemium (ASX:PPS) has rejected a merger bid from fund manager Netwealth (ASX:NWL) but indicated it would be open to a higher price.

“Very strong value proposition”

Netwealth proposed a merger worth $785 million – a 29% premium to Praemium’s closing price yesterday.

Netwealth says the combined group would have $72 billion in funds under management and be the largest independent wealth management platform in Australia.

“Netwealth is confident that the proposed transaction (if implemented) would create a very strong value proposition for existing and future clients and for shareholders of both groups,” said Netwealth boss Matt Heine.

“Praemium shareholders would have meaningful equity in the combined group and benefit alongside Netwealth shareholders from the strategic benefits as well as the costs and revenue synergies that would arise from the merger.”

Praemium says no to Netwealth merger – for now

But the deal was knocked back by Praemium saying it undervalued the company, its trajectory and market position.

It also alluded to the takeover bid of Hub24 (ASX:HUB) – unveiled just a fortnight ago – as a reference to argue that NWL’s offer was not representative of “recent transaction premia in the Australian platform and funds administration space”.

That bid was – despite only being $386 million – a 71.6% premium to the prior day’s closing price of Hub 24.

However, the board did not rule out accepting a higher bid.

“As a strong, rapidly growing independent player in the platform and funds administration industry, Praemium is in a unique position,” the board said.

“The board is open to engagement at an appropriate valuation but is mindful that any proposals put forward should appropriately reflect Praemium’s market position and growth potential as well as recent activity in the sector.”

A solid few years for the Sector

Netwealth listed in late 2017 at $3.70 per share and has grown nearly 400% since then.

Nick Guidera, portfolio manager at Eley Griffiths told Stockhead in September the pair benefited from exponential uptake of their platforms.

Hub 24 (ASX:HUB) and NetWealth (ASX:NWL) were minnows but had technological offerings to disrupt banks and wealth managers – advisers were moving with their feet and bringing flows across,” he said.

Netwealth experienced a relatively minor drop in the early 2020 market crash then rocketed in the rest of the year and held its ground in 2021.

While Netwealth shares remained unchanged this morning Praemium rose by 18% following the merger proposal and it too has grown substantially in 5 years – by 220%.

Netwealth (ASX:NWL) and Praemium (ASX:PPS) share price chart