Pepper Money Limited (ASX:PPM) (Pepper Money) today announces that it has executed binding agreements to acquire a 65% interest in Stratton Finance Pty Limited (Stratton) for $78.0 million. The acquisition is subject to Foreign Investment Review Board (FIRB) approval and other customary conditions precedent and is anticipated to complete in Q3 CY2022.
The transaction values Stratton at $120.0 million on a debt free / cash free basis, with the 65% interest acquired by Pepper Money for $78.0 million in cash (subject to customary adjustments), in part funded from a draw down on Pepper Money’s Corporate Debt Facility and in part from existing Pepper Money cash.
The parties have also entered into a Put and Call Option in relation to the remaining 35% stake in Stratton, exercisable from Q1 CY2024 through Q1 CY2026, with a base price of $42.0 million indexed based on Stratton’s performance in the period between completion of the acquisition of the 65% interest and the acquisition of the remaining 35%. The purchase price for the remaining 35% can be settled in cash or Pepper Money shares (or a combination of the two) at Pepper Money’s election.
Strategic Rationale and benefits
Stratton Finance is one of Australia’s leading online direct-to-consumer asset finance broking platforms, with more than 23 years of operating experience, plus strong brand recognition built on trust and transparency. Stratton is supported by a national network of offices (with its head office in Melbourne) and franchises, with a total headcount of 157 employees.1 Stratton’s Net Amount Financed (NAF) for financial year ending 30 June 2021 (FY2021) was $697.9 million increasing from $544.2 million in FY2020 representing growth of 28% year on year.
The acquisition will provide a range of strategic benefits to Pepper Money’s shareholders beyond the expected pro forma EBITDA2 contribution, which is forecast to be $12.5 million (pre minority interest) in the year ending 30 June 2022, from Stratton including:
- Delivering a new and immediate avenue for sustained incremental origination volume for Pepper Money’s Asset Finance business;
- Broadening Pepper Money’s distribution footprint by leveraging Pepper Money’s established infrastructure and shared service operations (operating efficiency);
- Continuing to deepen Pepper Money’s distribution base through Stratton’s well established broker base and franchise network;
- Growth opportunities by providing the Stratton network access to all Pepper Money’s products across mortgages, personal loans and commercial real estate loans;
- Access to Stratton’s customer data and insights that will further enhance Pepper Money’s product development pipeline; and
- Supporting efficiencies and cost synergies through vendor and other optimisation.
1 As at 1 September 2021.
2 EBITDA: Earnings before interest, tax, depreciation, and amortisation.