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Boutique funds management group ARC Funds (ASX: ARC) has its sights set on a slither of Australia's $1 trillion term deposits market with plans to buy all remaining shares it does not already own in The Term Deposit Shop (TTDS), within just over a month of executing a call option to acquire almost two-thirds of the company.
Melbourne-based ARC Funds - which only has a market capitalisation of $6 million - executed the $2.4 million call option early last month to buy 63.49 per cent of TTDS from its managing director Grant Goodier, who founded the Adelaide-based business in 2009.
The TTDS platform allows clients to find, compare and invest in term deposits and high interest savings accounts across banks, building societies and credit unions.
It is approved on more than 100 Australian Financial Service (AFS) licensees' approved product lists and facilitates deposits and transactions with more than 10 Australian banks.
ARC Funds has undergone significant changes since early 2024 when its then-managing director Harley Grosser, founder of Capital H Management which owns more than a quarter of the group, stepped down from the role into a non-executive directorship position.
Grosser was replaced by Sequoia Financial Group (ASX:SEQ) founder and former Finexia Financial Group Ltd (ASX:FNX) executive Scott Beeton.
Under Beeton's leadership the group acquired a 30 per cent equity interest in Ausbiz Capital in a move to market, promote and distribute funds to the broader Ausbiz Group's 110,000-plus subscribers, and consolidated its ownership of loss-making Merewether Capital.
ARC Funds' statutory loss of $829,938 for FY24 was influenced by $294,000 in non-cash items relating to legacy issues with a loan to Lanyon Investment Company, which was written off, as well as a write-off for its investment in Merewether Capital
Not long after its investment in Ausbiz Capital, in late 2024 ARC Funds announced a $692,500 raise to pursue further strategic investment opportunities.
It didn't take long before the market got a sense of what those opportunities might be with the purchase of the call option for TTDS.
TTDS has seen its funds under management (FUM) decline slightly from more than $550 million when ARC Funds purchased the option last year to its current level above $530 million, but highlights a reported 42.8 per cent compound annual growth rate (CAGR) over the last six years despite minimal investment.
Having raised a further $600,000 and secured $800,000 in private debt for the initial investment in combination with $1 million in cash on hand, ARC Funds has now announced it will offer further shares to TTDS's minority shareholders in exchange for the remaining 36.51 per cent stake.
If the proposal is successful, each TTDS minority unitholder will receive 21.72 ARC shares for every TTDS share they own, with an indicative total value for the further acquisition of $1.32 million.
The transaction must first be approved by ARC Funds shareholders at an upcoming extraordinary general meeting (EGM) in August.
"This move is consistent with our objective to own 100 per cent of TTDS. We believe this business has significant growth opportunities and will benefit from further investment in marketing and distribution to grow funds and also provide a pathway for the distribution of additional income products over time," says ARC managing director Scott Beeton.
"We are pleased to offer the other shareholders of TTDS the ability to swap into ARC shares and to potentially benefit from any future value created as the business grows.
"TTDS represents the start of our growth journey and we look forward to providing shareholders with updates on our progress."
ARC shares are up 4.35 per cent at $0.12 at 12:50pm AEST.
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