Computershare’s recently proposed acquisition of Bank of New York (BNY) Mellon’s investor services business is only the latest and most dramatic deal involving transfer agents in an industry that was already being transformed by a shifting regulatory landscape, creeping consolidation and a move by several transfer agents to expand their offerings by teaming up with other niche market players such as proxy solicitation firms.
The proposed $500 million all-cash Computershare-BNY deal, which would combine the industry’s two largest players, is likely to ‘precipitate a lot more action’ at the top of the market and accelerate a trend toward consolidation, notes Carl Hagberg, editor of the Shareholder Service Optimizer. “Scale is still very important – you need a very big and sophisticated computer system to do this work,” he points out. “You need a fair amount of space, and you need a critical mass of clients to do it in a big way.”
Robert Carney, chief operating officer of the American Stock Transfer & Trust Company (AST), suggests the deal may have grown out of recent regulatory changes that are ‘putting a strain on organisations’ and forcing many transfer agents to make difficult decisions about capital investments.
“These changes have taken some companies to a crossroads, and I think people are making strategic assessments just as they do in any business,” Carney observes. “Some are deciding it is not their core business and it is not worth the investment necessary in order to stay current. AST believes it needs to make the investment for its customers.”
But the BNY-Computershare deal also comes during a period of great opportunity in the transfer agency business, industry players contend. Corporate clients are grappling with onerous new requirements such as say-on-pay votes and an unprecedented wave of investor scrutiny, and some are bewildered by the changes.
Until now, however, these companies have rarely needed it. Previously Montrone would refer clients to outside proxy solicitation firms, but in recent years he’s noticed that the requests for assistance are becoming increasingly frequent. Some transfer agents are racing to step into the void by forming alliances with proxy solicitation companies in a bid to cash in on a trend toward ‘one-stop shopping’. Such alliances are not wholly new – Computershare itself acquired the proxy solicitor Georgeson Shareholder Services in 2003. Recently, the Registrar and Transfer Company (R&T) teamed up with veterans of proxy solicitation firm Altman to form an affiliated company called Eagle Rock. Thomas Montrone, R&T’s chairman, president and CEO, notes that his company has long helped midsized and smaller companies that don’t have in-house expertise with their shareholder challenges.
“A few years ago there was very little need for proxy solicitors, except in cases of a hostile merger or adversity,” Montrone says. “Proposals were easier to pass – they were considered routine.” As shareholder bases have expanded, however, the influence of investor advisory services firms has grown.
“The number of clients we were referring to proxy solicitors kept rising, and the need for us to be able to get a really responsive firm to help our clients out was increasing,” Montrone says. His interest was most urgently driven by a large number of commercial and regional banking clients, many of whom received Troubled Asset Relief Program funds and were required to issue preferred stock to the government. Few had provisions in their bylaws that would allow them to do so without seeking investor proposals.
Many found themselves facing angry shareholders in the midst of a financial crisis, at a time when the influence of proxy advisory firms was on the rise. It was only natural that these companies would turn
to their transfer agents for advice, Montrone says.
“Often, when an issuer is setting up a shareholder meeting, it’s in communication with the transfer agent because the transfer agent is the key to the process,” he explains. “The transfer agent knows who the registered shareholders are and does the tabulation of the annual shareholder meeting.”
[Article by Adam Piore, Corporate Secretary]
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