The Mortgage Choice Limited (ASX: MOC) share price just got sent to the moon by REA Group Limited (ASX: REA) with a takeover offer.
What is happening?
REA Group has announced it’s going to acquire the entire Mortgage Choice business for $1.95 cash per share, which gives the company an enterprise value of around $244 million.
Mortgage Choice is one of the biggest Australian mortgage broking businesses with other 500 brokers, 380 franchises across the country and more than 30 lending partners. It has a loan book of $54 billion and $11 billion in the 12 months to December 2020.
Why is REA Group doing this?
REA Group said the proposed acquisition aligns with REA’s financial services strategy.
It said it will leverage REA’s digital expertise, high intent property seeker audience and unique data insights across a larger network.
Another reason for the deal is that it will provide a compelling opportunity to establish a leading mortgage broking business with increased scale.
The third and final reason is that it will complement the existing Smartline broker footprint leading to stronger national broker coverage.
It’ll immediately add to earnings per share (EPS) with the potential for future cost and revenue synergies.
It seems like the deal is going to go ahead because the Mortgage Choice board has unanimously recommended the deal to shareholders and said they should vote in favour of the takeover.
It’s going to be funded by REA Group with debt.
Management comments
REA Group CEO Owen Wilson said: “The acquisition of Mortgage Choice represents an exciting opportunity for REA to create a leading broking business. It builds on our success to date, accelerating our financial services strategy while leveraging our existing strengths and capabilities.”
Is it a good acquisition?
Well, both sides of the agreement seem to think it’s a good deal. The Mortgage Choice share price is currently up 62% to $1.90.
REA Group seems to think it can make the acquisition work well and lead to a stronger market position.
But the market has sent the REA Group share price down almost 2% in response, so it seems investors are not that keen on the deal.
The property market is booming and that’s definitely helping. But the prospect of higher interest rates could be a problem for the property company.
