The Humm Group Ltd (ASX: HUM) share price has been highly volatile after receiving an offer from Latitude Group Holdings Ltd (ASX: LFS).
Latitude’s offer for part of Humm
The financial business Latitude has offered to buy part of the Humm business.
Latitude wants to buy the buy now, pay later (BNPL), instalment and credit card operations of Humm, called Humm Consumer Finance (HCF). The two businesses have entered into a non-binding heads of agreement to facilitate reciprocal due diligence and negotiation of a definitive agreement.
The proposal from Latitude is a consideration of 150 million Latitude shares, which is worth $300 million based on a $2 share price, and $35 million cash for HCF. That’s a total offer of $335 million.
HCF would be combined with Latitude’s existing BNPL and instalments businesses and Humm shareholders would keep the commercial business.
This proposal equates to approximately $0.68 per Humm share based on a $2 Latitude share price.
It was noted that by receiving Latitude shares as consideration, Humm shareholders could further benefit from any potential enhanced scale and efficiencies of Latitude’s enlarged consumer finance platform. Latitude thinks there are significant potential synergies from the combination.
Latitude said that annualised combined synergies could amount to $70 million, with $50 million from duplicate costs and technology rationalisation. Latitude said it’s expecting profit / earnings per share (EPS) to grow by 10%+ assuming the full run rate synergies.
Latitude also said the deal would cement Latitude’s position as the leading instalments and consumer lending business in Australia and New Zealand.
What would Humm look like after a deal?
Humm said its commercial business is a high growth segment.
It has purposefully reorientated FlexiCommercial, focusing on broker-originated small and medium business lending. The commercial business achieved cash net profit after tax of $22.3 million in FY21. Management said it has “strong forward momentum”, with a 100% year on year increase in volume in the first quarter of FY22.
Humm said that as a standalone business, its market position would be underpinned by standalone operational and technology platforms and an appropriate capital business.
The Humm board and management believe the commercial business has significant organic and strategic growth potential.
Summary thoughts
The market doesn’t seem to know what to make of the deal, with the Humm share price soaring at the open but now being down (at the time of writing). Will Humm be better without those segments? I’m not sure, they give the company several growth avenues.
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