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In May 2019, Sunsuper completed its fourth merger in two years - this time it integrated 74-year-old corporate superannuation fund CBH Super. Last year, we talked to Sunsuper, Kinetic Super and AustSafe ... In May 2019, Sunsuper completed its fourth merger in two years - this time it integrated 74-year-old corporate superannuation fund CBH Super. Last year, we talked to Sunsuper, Kinetic Super and AustSafe Super about getting the difference between 'mergers' and 'acquisitions' right. Considering the possibility of a merger is the ultimate litmus test for superannuation funds. Before recruitment industry fund Kinetic Super, with $3 billion and 270,000 members, merged with Sunsuper in May 2018, its chief executive Katherine Kaspar says the fund was performing well on all accounts. "But as a board we wanted to explore how we could deliver 'more,'" she says. A process, which Kaspar says involved undertaking an intense journey of better understanding member and employer needs. Kinetic then matched these needs against potential partners - an extensive due diligence of identifying a fund with similar values, vision, complimentary member demographics and history of success. AustSafe Super chief executive Craig Stevens says the boards have put the long-term interests of members first - which can be difficult for any organisation. In considering a merger, any board that says it is going to vote itself out of existence - first and foremost - is commendable, he points out. AustSafe's board looked at all the options and saw the benefits for the future of their 100,000 members with $2.5 billion of funds. "The fund is performing extremely well and AustSafe as a whole has performed exceptionally well. But we haven't let that cloud our strategic vision," Stevens says. In merging with Kinetic and AustSafe, Sunsuper chief executive Scott Hartley says both are high quality funds with a strong performance track record - and were under no pressure to merge. The trustees looked into the future on behalf of their members' best interest to determine what would give them the best chance to have a sustainable and competitive outcome, Hartley says. "It is a very selfless and honourable action both trustee boards did in making those decisions." External pressures The superannuation industry is facing intense pressure to consolidate. One recommendation the Productivity Commission is pushing for following its three-year review into the efficiency and competitiveness in super is for more consolidation to eventuate, despite the fact that mergers have been plentiful. Members would clearly benefit from an increase in merger activity, particularly among funds with less than $1 billion in assets, it said. Members in underperforming funds can cost them $635,000 at retirement. In the banking Royal Commission final report, Commissioner Kenneth Hayne wants trustees to conduct an annual scale assessment to determine if members would benefit from merging the fund with another to create scale with more assets and beneficiaries. Hayne warned that directors shouldn't be focused on whether they will have a place on the new board, rather what is in the best interests of members. But the unfortunate reality of mergers is redundancies. Stevens says: "We were really conscious around the fact that our people were made to feel secure through the whole process and that they play an important role in the final outcome." Hartley says some roles (mostly short-term contractors) were made redundant in the case of Kinetic, while most employees had a choice to take a redundancy payment or continue in the merged opportunity. "We try to minimise job losses." Pleasingly, Hartley says most decided to stay on and close to 50 employees joined in the Kinetic merger, while about 30 employees will join from AustSafe. Project management Sunsuper approached each merger slightly differently with some variances in how Kinetic and AustSafe were transitioned. "Following a heads of agreement, the first thing we did was form a joint project steering committee with the merging party and ourselves and that team is essentially overseen by myself, the other chief executive and the respective boards," Hartley says. The steering committee, which typically comprises three to four people from each side, spends time thinking about design and how best to merge the funds. The joint project team - which is much larger - is established to monitor the execution of the merger. For example, the Kinetic team had more than 30 people, a combination of Kinetic and Sunsuper people working together. In the case of Kinetic, Hartley says insurance arrangements were grandfathered for a period of time. Meanwhile, insurance arrangements with AustSafe will be harmonised with Sunsuper. "It is important to be able to get the scale benefits they need to be integrated in a similar design on a single platform while allowing for some differences, where it makes sense for the membership of the fund. Kinetic's integration was a good example of that," he says. During the Kinetic merger Kaspar ran dual strategies: one team ran the business strategy while the other focused on the merger. Sunsuper set up a joint advisory committee comprising its directors and ex-Kinetic directors exploring and recommending ways to continue to support the recruitment industry, and help contingent or casual workers achieve better retirement outcomes. In searching for a potential merger partner, AustSafe had to ensure it could connect with a fund that already had the scale and capabilities, and was strategically aligned. Once that was determined, Stevens says the process happened quite quickly. AustSafe has merged with small funds in the past and as part of its strategy has been looking at other merger opportunities. "What we found is people are already aware of the Sunsuper brand. About 75% of our employers that partner with us also partner with Sunsuper." Top of Stevens' mind is getting the communication piece to employers right. Interacting and supporting them through the change is important, he adds. "From a member point of view, our values with Sunsuper are actually quite similar. It's been quite easy to integrate and work with the teams." Synergies Each fund going into a merger had significant requirements and plans to ensure synergies were maximised. From Sunsuper's end, an advisory board, which comprises directors from each trustee board, was established to provide oversight of the merged entity and to ensure specific strategies are executed to maximise member value. It oversees management to monitor how the merged entity is operating in terms of retaining and growing members and employers, and overall making sure the value of the merged fund's legacy is maintained. Hartley says the same governance structure for Kinetic will be established for AustSafe whereby the advisory board oversees Sunsuper's management of the merged operations. Kinetic and Sunsuper members will benefit from combined synergies of about $30 million per year. For the AustSafe merger, this calculates to about $10 million per annum. In total, members will be better off $40 million per annum. In March 2019, when the AustSafe merger is expected to complete, Sunsuper will overall have close to 1.4 million members and $60 billion in assets. On top of that, IAG & NRMA Superannuation Plan will merge into Sunsuper sometime in 2019 after determining it can no longer operate as a standalone corporate super fund. It's important to know, Hartley says, that mergers are not takeovers or acquisitions. "Some people might be cynical about that, but that is the mindset that we approach these exercises with," he says.Read more

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