One of Australia's leading non-bank lenders Pepper Money (ASX: PPM) will acquire a 65 per cent stake in car loan broker Stratton Finance for $78 million, bolstering its existing fast-growing asset finance business that already accounts for one in nine electric vehicle sales in the country.
The deal values Melbourne-based Stratton Finance at $120 million and includes an option for Pepper to buy the remaining 35 per cent between 2024 and the first quarter of the 2026 calendar year for a base price of $42 million, indexed based on performance.
Founded in the late 90s by current finance chair Rob Chaloner, Stratton has a national network of offices and at the end of the last financial year its net amount financed (NAF) had reached almost $700 million.
Stratton is expected to make a $12.5 million EBITDA contribution in FY22, but Pepper believes the strategic benefits go beyond that including a broadened distribution footprint, network access where it can plug all Pepper Money products, the utilisation of customer data, sustained incremental origination volume for its asset finance business, and cost synergies.
The transaction will be funded via debt and cash from the Australian arm of Singapore-based Pepper Global, which owns more than 60 per cent stake of PPM.
“Our relationship with Pepper Money has grown considerably over recent years with Pepper Money today being our largest funder of auto and leisure assets,” Chaloner said.
“Our businesses share a similar culture with a strong focus on customer satisfaction. The acquisition announced today provides us with closer alignment with Pepper Money and its strong track record of product innovation which we will be able to integrate into our lending and technology capabilities to provide seamless customer experiences with enhanced choice and value”.
"We are excited about the vertical integration and growth opportunities that this partnership will bring."
If the deal is successful, it will see PPM gain access to 1.3 million contacts in Stratton’s database, which comprises customers taking out loans for cars, boats, caravans and commercial equipment.
The purchase will further develop Pepper’s capabilities in vehicle lending, which is considered one of the largest divisons in the asset finance market – reaching a compound annual growth rate of 2.9 per cent over the last 10 years.
New motor cars make up 52 per cent of consumer vehicle financing, followed by used motor vehicles at 37 per cent, other vehicles at 9 per cent and motorcycles at 2 per cent.
In FY21, Stratton Finance settled 16,000 contracts for an average contract value of $43,000 and reported $37 million in pro forma revenue for the period.
"We started our asset finance business at the end of 2014 and have organically grown the business to $3.9 billion in assets under management, making us the leading non-bank asset finance lender in Australia. It is a strong business that provides us with diversity of income and enhances our margins,” Pepper Money CEO Mario Rehayem said.
“Our acquisition of the 65 per cent stake in Stratton will enable us to accelerate the growth of the asset finance business, by providing opportunities to grow our direct-to-consumer offerings and leverage Stratton's broad customer data to continue to develop innovative customer focused solutions,” he said.
“Stratton is a business that is strongly aligned with Pepper Money's core values and its purpose-built technology already connects with Pepper Money's asset finance solana platform, positioning us to continue to drive strong business growth".
PPM shares were up 5.8 per cent at $2.19 at 12:49 AEST.
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