Consumer finance giant Latitude Group (ASX: LFS) hopes to strengthen its buy-now pay-later (BNPL) credentials after making a $335 million offer to acquire Humm's (ASX: HUM) consumer business, also bundling cards and instalments into a potential deal.
Formerly known as FlexiGroup and having earned the Choice Shonky Award for 'unaffordable debt' in 2021, Humm's BNPL business tailors to larger transactions ranging from $2,000 to $30,000.
Humm's BNPL division passed the $1 billion mark in transaction volume in FY21 and turned a cash profit of $1.2 million, while the group's Australian and New Zealand credit card businesses had a slightly higher volume of $1.11 billion but substantially more cash profit at $44.9 million.
Latitude and Humm have reached a non-binding heads of agreement with exclusivity through 31 January to allow for discussions of the suitor's offer, comprising $300 million in Latitude shares and $35 million in cash.
If it goes ahead, the acquisition would leave Humm as a pure-play commercial business - a division that notched 56 per cent growth last year in volume, outpacing the BNPL offering's growth by 25 percentage points and also generating $22.3 million in cash profit, up 441 per cent year-on-year and bolstered by a greater focus on broker-originated SME lending.
Latitude managing director and CEO Ahmed Fahour believes Humm's consumer business would be "highly accretive" to his company's shareholders, with expectations it would bring about annualised combined synergies and cash earnings from the acquisition to exceed $100 million pre-tax in 2023.
Humm's consumer business reported a total of $1.8 billion of net receivables and $152 million in net tangible assets at the last financial year.
“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," Fahour says.
“It would also realise highly deliverable synergies which will enhance our financial performance and create significant shareholder value.”
The deal also contemplates appointing current Humm CEO Rebecca James to lead the rejuvenated BNPL arm.
“HUM’s Board and Management are committed to maximising shareholder value,” says HUM chairman Christine Christian.
“In this context, we believe that the Latitude proposal is potentially attractive to HUM shareholders and warrants due diligence and detailed negotiation.”
The proposal's value is based on an indicative value of $2 per LFS share with 150 million Latitude shares to be offered to HUM shareholders. The HUM share price surged 7 per cent this morning on the market opening, but the daily rise has since scaled back to around 2.8 per cent at the time of writing.
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