Australia’s OG buy-now-pay-later business is set to be cashed out at a high as the sector undergoes a consolidation phase with Humm Group (ASX: HUM) having been tapped on the shoulder by Latitude (ASX: LFS) for its consumer finance business to the tune of a $335 million offer.
The offer comes in the form of a non-binding Heads of Agreement while due diligence takes place with Latitude proposing an offer of $300m in LFS shares (to be valued at $2.00 each) and $35m in cash for Humm’s consumer finance division which consists of BNPL, instalment, and credit card operations.
“Humm’s consumer business is highly accretive to Latitude’s shareholders. The proposed Transaction would enable us to accelerate the deployment of BNPL and instalment solutions for our customers and merchant partners in Australia/New Zealand and accelerate our growth in our international markets,” said Latitude CEO, Ahmed Fahour.
“It would also realise highly deliverable synergies which will enhance our financial performance and create significant shareholder value.”
As at 30 June 2021, Humm’s consumer business had $1.8 billion of net receivables and $152 million of net tangible assets. If accepted, the acquisition would create a combined Latitude Group with more than $8 billion of receivables and over five million customers, with 70,000-plus merchants.
Should the merger proceed, Humm Group CEO Rebecca James would be invited to lead the combined BNPL business while reporting to Fahour while two Humm representatives would also be invited to join the Latitude Board of Directors.
Latitude’s proposal for Humm Consumer Finance equates to approximately $0.68 per HUM share based on a $2.00 Latitude share price. If proceeded, Humm would continue to operate as a pure play commercial business, focusing on broker-originated SME lending. In FY21, this division delivered $22.3m of NPAT.
The approach from Latitude for Humm’s consumer division comes just one week after Bank of Queensland was reported by media outlets to be exploring an acquisition of Humm, before denying those reports.
With increasing regulatory surveillance, the once hot BNPL sector appears to be cooling after market leader Afterpay (ASX: APT) was acquired by Square last year for $39 billion, despite never turning a profit.
Having been long time operators of BNPL services under their previous name Flexigroup, well before the term BNPL entered mainstream vernacular, Humm had been the only operator of these services to have remained profitable throughout the sector’s boom having delivered $64.8m NPAT in FY21.
Latitude currently expects annualised combined synergies and cash earnings from the acquisition of Humm’s consumer business to exceed $100 million pre-tax in full year 2023, with $70 million of synergies including $50 million from duplicate costs and technology rationalisation.
The Transaction is expected to be double digit EPS accretive for Latitude assuming full run rate synergies. Latitude has exclusivity clauses attached to the proposed acquisition which will lapse on 31 January 2022.
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