Aggregators AFG and Connective have announced that they are going to merge to create a company comprising 6,575 brokers.
The combined group will see ASX-listed aggregation company AFG acquire the assets and liabilities of the Connective Group to create a significant national mortgage distribution network, with more than 6,575 brokers and combined mortgage settlements of $76 billion in FY19.
However, the two brands will remain separate and retain their own identities, with the day-to-day running of the businesses remaining much as they are now (for example, with AFG retaining its FLEX CRM system and Connective retaining Mercury), along with the same executive management team.
However, Connective CEO and founding shareholder Glenn Lees will be offered the opportunity to join the board of AFG upon completion of the transaction.
It is not expected that brokers would experience a change in their current arrangements with their aggregator head, and it is expected that lender BDMs would also largely stay the same.
Under the transaction, Connective will receive $60 million in cash and 30,886,441 AFG shares.
This values the acquisition at $120 million.
The transaction remains conditional upon court approval as well as approval from shareholders, the ACCC and other relevant parties.
Subject to satisfaction of the conditions, the transaction is expected to be completed in the second half of FY20.
‘A natural fit’
AFG chair Mr Tony Gill said: “The merged business will have a significant national footprint in Australia’s $1.8 trillion home loan market.
“The delivery of competition and choice to the Australian lending market is at the core of our strategy. The expanded distribution channel and broader diversification of products the combined group can supply will provide greater choice for both brokers and consumers”.
AFG chief executive David Bailey added: “AFG’s ongoing successful execution of our earnings diversification strategy in recent years has the business set up for strong cash flow generation and well positioned for growth. The prospect of complementing AFG’s existing business with the cultural fit and similar customer-focused philosophy of the Connective business is compelling.
“Competition is at the heart of both businesses, with the non-major lenders representing 48 per cent of residential mortgage lodgements through AFG’s network in July 2019. Greater geographical portfolio diversification positions the merged group to further enhance choice and competition for consumers in all markets across Australia. Together with AFG’s existing growth plans, the opportunity presented by the sale process undertaken by Connective was absolutely aligned to our strategy.
“With extensive experience in the mortgage broking industry and proven management expertise, respected senior executives Glenn Lees and Mark Haron will continue to run Connective’s business and will retain a significant shareholding in the merged group.
“I look forward to working with Glenn, Mark, the Connective team and their network of brokers to create a driving force in competition in the Australian lending market,” he said.
Meanwhile, Connective CEO Glenn Lees commented: “The coming together of the Connective and AFG teams is a natural fit. We share a strong set of values with the priority to always work on behalf of our brokers. I am incredibly proud of the business and, alongside the team, I look forward to continuing to drive the success of our brokers who positively impact the lives of thousands of Australian home buyers every year.”
Speaking to The Adviser, Connective director Mark Haron said: “We will still be running our separate businesses while also being a market-competing against each other.
“This is not new; you have FAST, PLAN and Choice having done this for years and its similar in other groups where they run different models.
“I think brokers will see what a great thing if it is for them when the strength of both their businesses together play out to help the industry overall without diluting the competition.”
The Connective director told Mortgage Business that AFG’s securitisation program would give Connective “the ability to control and manage [its] destiny and help brokers manage theirs”.
He added that the merged entity would also enable the two aggregators to “work as a combined force” in the compliance scrutiny and technology-driven era” and manage these “more effectively and efficiently”.
Likewise, Mr Bailey said the transaction represents an opportunity for all AFG shareholders to benefit from the diversification and flexibility of the combined group.
“Connective brokers will have access to AFG’s securitisation program, and the combined network also offers the opportunity to grow scale in both asset finance and commercial lending. Connective brings a contrasting revenue model based on fixed membership fees and offers services across residential, commercial and asset finance, as well as its own range of white label home loan products under the Connective Home Loans brand.
“This should result in more lender and product opportunities for brokers, which in turn means more choice for their customers. This is particularly important for the self-employed and SME sectors of the market that are presently under banked.”
He added: “When we also consider the possibilities for both cost and revenue synergies, together with the leverage of the distribution potential, the transaction becomes one we are delighted with. We will continue to update the market as we reach key milestones in the process.”
[Related: Aggregator expands management team]
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.
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