One of the year’s most anticipated floats, that of online electronic property settlement service provider PEXA, has been pulled amid turbulent markets.
The decision to cancel the $1.8 billion initial public offering has left PEXA investors – including Macquarie Group, the big four banks, four state governments and former Toll Holdings MD Paul Little – rethinking exit plans. One possibility is to re-engage with a consortium headed by PEXA’s second biggest shareholder, the ASX-listed Link Group, which had made a firm offer of $1.6 billion before PEXA decided to head to the big board. The consortium also includes Commonwealth Bank of Australia and Morgan Stanley Infrastructure.
The PEXA board met late on Thursday afternoon to decide its next move, which could include retesting the market in coming weeks, given PEXA was not due to list until November 19. Under a trade sale all shareholders would exit, while under an IPO the Victorian government and CBA had planned to retain stakes.
As revealed by The Australian Financial Review‘s Street Talk column on Thursday, the bookbuild failed to raise the $800 million in fresh funds. One banking source said pulling the float was a “sensible outcome” given “everything had to go right for that valuation to materialise” and interest from potential shareholders disappointed the vendors.
His view was that PEXA would now be likely to re-engage with the consortium. Deferring the float would be a risky move, he said.
Both PEXA and rival Sympli are electronic property settlement services for lawyers, conveyancers and financial institutions. Right now PEXA is the monopoly operator in the $200 million market but Sympli has targeted regulatory approval by year’s end.
Sympli boss David Wills told the Financial Review he hopes to launch by March or April next year. NSW, Victoria and WA will have moved to compulsory electronic conveyancing by July next year. Mr Wills added that Sympli, which reports testing of its system is advanced in two states with the other not far behind, is not limited to one or two party transactions.
“We are working to provide the same services by way of documents and registrations that PEXA provides,” said Mr Wills, a former Lazard Australia banker. We will be side by side with PEXA in terms of service capability. Then it comes down to serviceability and the way you treat your clients – all those things you would expect ELNOS [Electronic Lodgement Network Operators] to compete on.”
Mr Wills was clear he felt Sympli – which is backed by InfoTrack and the ASX – would spend less building its platform than PEXA did and the resulting competition would be positive for the consumer.
He said the combination was a powerful one. “Some of the things that PEXA had to take time to build, we didn’t have to. For example, the connections into banks. We have those in place through the ASX. Being second to market you tend to do these things much better.”
Not only will Sympli spend less building and operating the ELNO, Mr Wills said he can “do things much cheaper than PEXA”.
The key for Sympli is to ensure interoperability with other ELNOs. Mr Wills defined interoperability as a “sharing of work space between ELNOS”, which he claims is easily done but PEXA claims it is difficult to achieve two products being used together.
“The industry is potentially at risk of underestimating the impact of competition and NSW government announcement of interoperability,” Mr Wills said. “PEXA is trying to play this down and tell people how difficult interoperability will be because it poses a threat to their valuation.”
Meanwhile, a spokesperson for the Australian Competition and Consumer Commission which is reviewing the sector said it had not ruled out enforcement action against various state governments and PEXA over a possible breach of legislation and an uneven playing field.
“Depending on its outcomes, the review of the intergovernmental agreement into electronic conveyancing may address some of the areas of concern in the industry, such as the separation requirements and lack of clarity about interoperability between ELNOs, as may [national regulator] ARNECC’s current consultation on its model operating requirements,” the spokesperson said.
“The ACCC has previously noted the potential issues with aspects of the regulations for electronic conveyancing, and the desirability of a level playing field for all ELNOs.”